Retail Records Inc. acquired all of Decibel Studios' voting shares on January 1, 20X2, for $280,000. Retail's balance sheet immediately after the combination contained the following balances: RETAIL RECORDS INC. Balance Sheet January 1, 20X2

Cash and Receivables $120,000 Accounts Payable $75,000
Inventory 110,000 Taxes Payable 50,000
Land 70,000 Notes Payable 300,000
Buildings and Equipment (net) 350,000 Common Stock 400,000
Investment in Decibel Stock 280,000 Retained Earnings 105,000
Total Assets $930,000 Total Liabilities and Stockholders' Equity $930,000

Decibel’s balance sheet at acquisition contained the following balances: DECIBEL STUDIOS Balance Sheet January 1, 20X2

Cash and Receivables $40,000 Accounts Payable $90,000
Inventory 180,000 Notes Payable 250,000
Buildings and Equipment (net) 350,000 Common Stock 100,000
Goodwill 30,000 Additional Paid-In Capital 200,000
Retained Earnings (40,000 )
Total Assets $600,000 Total Liabilities and Stockholders' Equity $600,000

On the date of combination, the inventory held by Decibel had a fair value of $170,000, and its buildings and recording equipment had a fair value of $375,000. Goodwill reported by Decibel resulted from a purchase of Sound Stage Enterprises in 20X1. Sound Stage was liquidated and its assets and liabilities were brought onto Decibel's books.

Required:
Compute the balances to be reported in the consolidated balance sheet immediately after the acquisition for:

a. Inventory.
b. Buildings and Equipment (net).
c. lnvestment in Decibel Stock.
d. Goodwill.
e. Common Stock.
f. Retained Earnings.

a. Inventory = $280,000

b. Buildings and Equipment (net) $725,000

c. lnvestment in Decibel Stock = 0

d. Goodwill = $35,000

e. Common Stock = $400,000

f. Retained Earnings = $105,000

Explanation:

A balance sheet is a snapshot of the assets, liabilities, and equity of a business at any point in time.

From the information given we will calculate the following:

a. Inventory = Initial Inventory + Present inventory = 110,000 + 170,000 = $280,000

b. Buildings and Equipment (net) = initial building value + present building value = 350,000 + 375,000 = $725,000

c. lnvestment in Decibel Stock will not appear in the consolidated balance sheet as it is cancelled out by liquidation

d. Goodwill = Fair value of consideration + Fair value of Decibel's assets

Fair value of Decibel assets will be assets less liabilities

Goodwill = 280,000 + (40,000 + 170,000 + 375,000 - 90,000 - 250,000 - 245,000)

Goodwill = $35,000

e. Common Stock = $400,000

f. Retained Earnings = $105,000

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: