Solved by verified expert :2.
On January 1, 20X5, Brown Inc. acquired Larson
Company’s net assets in exchange for Brown’s common stock with a par value of
$100,000 and a fair value of $800,000. Brown also paid $10,000 in direct
acquisition costs and $15,000 in stock issuance costs.
On
this date, Larson’s condensed account balances showed the following:
Current Assets
Book
Value
Fair
Value
$ 280,000
$ 370,000
Plant
and Equipment
440,000
480,000
Accumulated
Depreciation
(100,000)
120,000
Intangibles
– Patents
80,000
Current
Liabilities
(140,000)
(140,000)
Long-Term
Debt
(100,000)
(110,000)
Common
Stock
(200,000)
Other
Paid-in Capital
(120,000)
Retained Earnings
(140,000)
Required:
Record
Brown’s purchase of Larson Company’s net assets on the books of Brown Inc.
1-9
Chapter 1
……………
3.
The Chan Corporation purchased the net assets
(existing liabilities were assumed) of the Don Company for $900,000 cash. The
balance sheet for the Don Company on the date of acquisition showed the
following:
Assets
Current assets………………………………….
$
100,000
Equipment………………………………………
300,000
Accumulated
depreciation…………………………
(100,000)
Plant………………………………………….
600,000
Accumulated
depreciation…………………………
(250,000)
Total………………………………………….
$ 650,000
=========
Liabilities
and Equity
Bonds payable, 8%……………………………….
$
200,000
Common stock, $1
par…………………………….
100,000
Paid-in capital in excess of
par………………….
200,000
Retained earnings……………………………….
150,000
………………………………………….Total
$ 650,000
=========
1-10
Chapter 1
Required:
The
equipment has a fair value of $300,000, and the plant assets have a fair value
of $500,000. Assume that the Chan Corporation has an effective tax rate of 40%.
Prepare the entry to record the purchase of the Don Company for each of the
following separate cases with specific added information:
a.
The sale is a nontaxable exchange to the seller that
limits the buyer to depreciation and amortization on only book value for tax
purposes.
b.
The bonds have a current fair value of $190,000. The
transaction is a nontaxable exchange.
c.
There are $100,000 of prior-year losses that can be
used to claim a tax refund. The transaction is a nontaxable exchange.
d.
There are $150,000 of past losses that can be
carried forward to future years to offset taxes that will be due. The
transaction is a nontaxable exchange.
4.
On January 1, 20X5, Zebb and Nottle Companies had
condensed balance sheets as shown below:
………………………
………………….
Zebb
Nottle
Current Assets
Company
Company
$1,000,000
$
600,000
Plant and
Equipment………………….
1,500,000
800,000
$2,500,000
$1,400,000
Current Liabilities
==========
==========
$ 200,000
$
100,000
Long-Term
Debt………………………
300,000
300,000
Common
Stock, $10 par…………………
1,400,000
400,000
Paid-in
Capital in Excess of Par……….
0
100,000
Retained
Earnings…………………….
600,000
500,000
$2,500,000
$1,400,000
==========
==========
Required:
Record the
acquisition of Nottle’s net assets, the issuance of the stock and/or payment of
cash, and payment of the related costs. Assume that Zebb issued 30,000 shares
of new common stock with a fair value of $25 per share and paid $500,000 cash
for all of the net assets of Nottle. Direct acquisition costs of $50,000 and stock
issuance costs of $20,000 were paid-in cash. The combination is accounted for
as a purchase. Current assets had a fair value of $650,000, plant and equipment
had a fair value of $900,000, and long-term debt had a fair value of $330,000.
