Effective December 31, 2003, Zintel Corporation proposes to issue additional shares of its common stock in exchange for all the assets and liabilities of Smith Corporation and Platz Corporation, after which Smith and Platz will distribute the Zintel stock to their stockholders in complete liquidation and dissolution. Balance sheets of each of the corporations immediately prior to merger on December 31, 2003, follow. The common stock exchange ratio was negotiated to be 1:1 for both Smith and Platz.
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Zintel
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Smith
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Platz
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Current assets
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$1,600,000
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$ 350,000
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$ 12,000
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Long-term assets (net)
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5,700,000
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1,890,000
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98,000
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Total
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$7,300,000
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$2,240,000
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$110,000
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Current liabilities
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$ 700,000
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$ 110,000
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$ 9,000
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Long-term debt
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1,100,000
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430,000
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61,000
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Common stock, $5 par value
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2,500,000
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700,000
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20,000
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Retained earnings
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3,000,000
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1,000,000
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20,000
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Total
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$7,300,000
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$2,240,000
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$110,000
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Required:
Prepare journal entries on Zintel's books to record the combination. Assume the following:
The identifiable assets and liabilities of Smith and Platz are all reflected in the balance sheets (above), and their recorded amounts are equal to their current fair values except for long-term assets. The fair value of Smith's long-term assets exceed their book value by $20,000 and the fair value of Platz's long-term assets exceed their book values by $5,000. Zintel's common stock is traded actively and has a current market price of $15 per share. Prepare journal entries on Zintel's books to record the combination.
(AICPA adapted)
Problem 2-1 Consolidation
Condensed balance sheets for Phillips Company and Solina Company on January 1, 2003, are as follows:
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Phillips
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Solina
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Current assets
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$180,000
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$ 85,000
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Plant and equipment (net)
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450,000
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140,000
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Total assets
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$ 630,000
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$ 225,000
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Total liabilities
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$ 95,000
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$ 35,000
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Common stock, $10 par value
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350,000
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160,000
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Other contributed capital
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125,000
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53,000
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Retained earnings (deficit)
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60,000
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(23,000)
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Total equities
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$ 630,000
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$ 225,000
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On January 1, 2003, the stockholders of Phillips and Solina agreed to a consolidation whereby a new corporation, McGregor Company, would be formed to consolidate Phillips and Solina. McGregor Company issued 30,000 shares of its $20 par value common stock for the net assets of Phillips and Solina.
On the date of consolidation, the fair values of Phillip's and Solina's current assets and liabilities were equal to their book values. The fair value of plant and equipment for each company was: Phillips, $530,000; Solina, $150,000.
The investment banking house of Bradly and Bradly estimated that the fair value of McGregor Company's common stock was $35 per share. Phillips will incur $20,000 of direct acquisition costs and $6,000 in stock issue costs.
Required:
Prepare the journal entries to record the consolidation on the books of McGregor Company assuming that:
Problem 2-3 Purchase of Net Assets Using Bonds
On January 1, 2004, Perez Company acquired all the assets and assumed all the liabilities of Stalton Company and merged Stalton into Perez. In exchange for the net assets of Stalton, Perez gave its bonds payable with a maturity value of $600,000, a stated interest rate of 10%, interest payable semiannually on June 30 and December 31, a maturity date of January 1, 2011, and a yield rate of 12%.
Balance sheets for Perez and Stalton (as well as fair value data) on January 1, 2004, were as follows:
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Perez
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Stalton
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Book Value
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Book Value
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Fair Value
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Cash
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$ 250,000
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$114,000
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$114,000
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Receivables
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352,700
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150,000
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135,000
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Inventories
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848,300
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232,000
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310,000
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Land
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700,000
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100,000
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315,000
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Buildings
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950,000
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410,000
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54,900
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Accumulated depreciation -
buildings
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(325,000)
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(170,500)
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Equipment
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262,750
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136,450
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123,700
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Accumulated depreciation -
equipment
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(70,050)
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(90,450)
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(84,250)
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Total assets
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$ 2,968,700
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$ 881,500
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$ 968,350
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Current liabilities
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$ 292,700
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$95,300
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$95,300
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Bonds payable, 8% due
1/1/2013, Interest
payable 6/30 and 12/31
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300,000
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260,000
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Common stock, $15 par value
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1,200,000
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|
|
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Common stock, $5 par value
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236,500
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|
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Other contributed capital
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950,000
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170,000
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|
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Retained earnings
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526,000
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79,700
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|
|
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Total equities
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$ 2,968,700
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$ 881,500
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|
|
|
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Required:
Prepare the journal entry on the books of Perez Company to record the acquisition of Stalton Company's assets and liabilities in exchange for the bonds.