Problem 1: Revaluation of assets.
Jack Company is a corporation that was organized on July 1, 2015. The June 30, 2020, balance sheet for Jack is as follows:
|
Assets
|
|
Investments
|
|
$400,500
|
|
Accounts receivable
|
$1,250,000
|
|
|
Allowance for doubtful accounts
|
(300,000)
|
950,000
|
|
Inventory
|
|
1,500,000
|
|
Prepaid insurance
|
|
18,000
|
|
Land
|
|
58,000
|
|
Machinery and equipment (net)
|
|
1,473,500
|
|
Goodwill
|
|
100,000
|
|
Total assets
|
|
$4,500,000
|
|
Liabilities and Equity
|
|
Current liabilities
|
|
$1,475,000
|
|
Common stock ($10 par)
|
|
1,200,000
|
|
Retained earnings
|
|
1,825,000
|
|
Total liabilities and equity
|
|
$4,500,000
|
The experience of other companies over the last several years indicates that the machinery and equipment can be sold at 130% of its book value.
An analysis of the accounts receivable indicates that the realizable value is $925,000. An independent appraisal made in June 2020 values the land at $70,000. Using the lower-of-cost-or-market rule, inventory is to be restated at $1,200,000.
Calway Corporation plans to exchange 18,000 of its shares for the 120,000 Jack shares. During June 2020, the fair value of a share of Calway Corporation is $270. Acquisition costs are $12,000.
The stockholders' equity account balances of Calway Corporation as of June 30, 2015, are as follows:
|
Common stock ($10 par)
|
$2,000,000
|
|
Paid-in capital in excess of par
|
580,000
|
|
Retained earnings
|
2,496,400
|
|
Total stockholders' equity
|
$5,076,400
|
Required
Record the acquisition of Jack Company by Calway on July 1, 2020. Use value analysis to support the acquisition entries.
Problem 2: Cash purchase with goodwill.
Tweeden Corporation is contemplating the acquisition of the net assets of Sylvester Corporation in anticipation of expanding its operations. The balance sheet of Sylvester Corporation on December 31, 2015, is as follows:
|
Sylvester Corporation
Balance Sheet
December 31, 2015
|
|
Current assets:
|
|
|
Current liabilities:
|
|
|
|
Notes receivable
|
$ 24,000
|
|
Accounts payable
|
$ 45,000
|
|
|
Accounts receivable
|
56,000
|
|
Payroll and benefit-related liabilities
|
12,500
|
|
|
Inventory
|
31,000
|
|
|
|
|
|
Other current assets
|
18,000
|
|
Debt maturing in one year
|
10,000
|
|
|
Total current assets
|
|
$129,000
|
Total current liabilities
|
|
$ 67,500
|
|
Investments
|
|
65,000
|
|
|
|
|
Fixed assets:
|
|
|
Other liabilities:
|
|
|
|
Land
|
$ 32,000
|
|
long-term debt
|
$248,000
|
|
|
Building
|
245,000
|
|
Payroll and benefit-related liabilities
|
156,000
|
|
|
Equipment
|
387,000
|
|
|
|
|
|
Total fixed assets
|
|
664,000
|
Total other liabilities
|
|
404,000
|
|
Intangibles:
|
|
|
Stockholders' equity:
|
|
|
|
Goodwill
|
$ 45,000
|
|
Common stock
|
$100,000
|
|
|
Patents
|
23,000
|
|
Paid-in capital in excess of par
|
250,000
|
|
|
Trade names
|
10,000
|
|
Retained earnings
|
114,500
|
|
|
Total intangibles
|
|
78,000
|
Total equity
|
|
464,500
|
|
Total assets
|
|
$936,000
|
Total liabilities and equity
|
|
$936,000
|
An appraiser for Tweeden determined the fair values of Sylvester's assets and liabilities to be as shown on next page.
|
Assets
|
liabilities
|
|
Notes receivable
|
$ 24,000
|
Accounts payable
|
$ 45,000
|
|
Accounts receivable
|
56,000
|
Payroll and benefit-related liabilities-current
|
12,500
|
|
Inventory
|
30,000
|
|
|
|
Other current assets
|
15,000
|
Debt maturing in one year
|
10,000
|
|
Investments
|
63,000
|
|
|
|
Land
|
55,000
|
Long-term debt
|
248,000
|
|
Building
|
275,000
|
Payroll and benefit-related liabilities-long-term
|
156,000
|
|
Equipment
|
426,000
|
|
|
|
Goodwill
|
-
|
|
|
|
Patents
|
20,000
|
|
|
|
Trade names
|
15,000
|
|
|
The agreed-upon purchase price is $580,000 in cash. Acquisition costs paid in cash total $20,000.
Required
Using the above information, do value analysis and prepare the entry on the books of Tweeden Corporation to acquire the net assets of Sylvester Corporation on December 31, 2015.
Attachment:- Templates.xlsx