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The Board of Directors of Art Innovations, Inc., has voted to acquire The Painter art gallery (Gallery 1 from your Week 3 case) in Paris, France. The acquisition is made on January 1, 2013. Art Innovations issues 22,000 of its $1 par value stock with a market price of $10 per share on the date of acquisition to acquire a 100% interest in The Painter. The Painter will retain separate incorporation after the acquisition. In addition, Art Innovators paid $10,000 to a business broker for assistance in finding the acquisition and $2,000 in stock issuance costs. The Balance Sheets on the date of acquisition are shown below, along with the Fair Market Values of the assets and liabilities of The Painter. Art Innovations is presented in U.S. dollars and The Painter in Euros. Art Innovations, Inc. Balance Sheet January 1, 2013 Assets Cash 85,000 Receivables 45,000 Inventory 170,000 Fixed Assets (net) 192,000 Total Assets 492,000 Liabilities and Equities Liabilities 82,000 Common Stock 50,000 Additional Paid-In-Capital 45,000 Retained Earnings (12/31/12) 315,000 Total Liabilities and Equity 492,000 The Painter Balance Sheet January 1, 2013 Assets Book Value Fair Market Value Cash 44,000 44,000 Receivables 46,000 46,000 Inventory 58,000 58,000 Fixed Assets (net) 139,000 182,000 Total Assets 287,000 330,000 Liabilities and Equities Liabilities 176,000 176,000 Common Stock 60,000 Retained Earnings (12/31/12) 51,000 Total Liabilities and Equity 287,000 Relevant Exchange Rates for the Euro (in U.S. dollars) are as follows: January 1, 2012 .60 December 31, 2012 .65 Weighted Average, 2012 .63 1. Translate The Painter’s Balance Sheet and FMV into U.S. Dollars (remember to look back at your Week 3 case to get translation numbers. 2. In General Journal form, record the acquisition entry for Art Innovators, Inc. using the acquisition method. Using that entry, update their January 1, 2013 Balance Sheet. 3. Prepare a consolidation worksheet and a balance sheet for the date of acquisition for Art Innovators, Inc. 4. Identify the possible reasons why Art Innovators, Inc. would acquire an existing gallery rather than starting their own in France. 5. Explain why Art Innovators, Inc. would pay more than the FMV of the net assets and liabilities to acquire The Painter.

The Board of Directors of Art Innovations, Inc., has voted to acquire The Painter art gallery (Gallery 1 from your Week 3 case) in Paris, France. The acquisition is made on January 1, 2013. Art Innovations issues 22,000 of its $1 par value stock with a market price of $10 per share on the date of acquisition to acquire a 100% interest in The Painter. The Painter will retain separate incorporation after the acquisition. In addition, Art Innovators paid $10,000 to a business broker for assistance in finding the acquisition and $2,000 in stock issuance costs.

The Balance Sheets on the date of acquisition are shown below, along with the Fair Market Values of the assets and liabilities of The Painter. Art Innovations is presented in U.S. dollars and The Painter in Euros.

Art Innovations, Inc.

Balance Sheet

January 1, 2013

Assets
Cash 85,000
Receivables 45,000
Inventory 170,000
Fixed Assets (net) 192,000
Total Assets 492,000
Liabilities and Equities
Liabilities 82,000
Common Stock 50,000
Additional Paid-In-Capital 45,000
Retained Earnings (12/31/12) 315,000
Total Liabilities and Equity 492,000

The Painter

Balance Sheet

January 1, 2013

Assets Book Value Fair Market Value
Cash 44,000 44,000
Receivables 46,000 46,000
Inventory 58,000 58,000
Fixed Assets (net) 139,000 182,000
Total Assets 287,000 330,000
Liabilities and Equities
Liabilities 176,000 176,000
Common Stock 60,000
Retained Earnings (12/31/12) 51,000
Total Liabilities and Equity 287,000

Relevant Exchange Rates for the Euro (in U.S. dollars) are as follows:

January 1, 2012 .60

December 31, 2012 .65

Weighted Average, 2012 .63

1. Translate The Painter’s Balance Sheet and FMV into U.S. Dollars (remember to look back at your Week 3 case to get translation numbers.

2. In General Journal form, record the acquisition entry for Art Innovators, Inc. using the acquisition method. Using that entry, update their January 1, 2013 Balance Sheet.

3. Prepare a consolidation worksheet and a balance sheet for the date of acquisition for Art Innovators, Inc.

4. Identify the possible reasons why Art Innovators, Inc. would acquire an existing gallery rather than starting their own in France.

5. Explain why Art Innovators, Inc. would pay more than the FMV of the net assets and liabilities to acquire The Painter.

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