Problem 1 - 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:
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Book Value
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Fair Value
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Current Assets
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$280,000
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$370,000
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Plant and Equipment
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440,000
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480,000
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Accumulated Depreciation
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(100,000)
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Intangibles - Patents
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80,000
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120,000
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Current Liabilities
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(140,000)
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(140,000)
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Long-Term Debt
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(100,000)
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(110,000)
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Common Stock
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(200,000)
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Other Paid-in Capital
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(120,000)
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Retained Earnings
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(140,000)
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Required: Record Brown's purchase of Larson Company's net assets.
Problem 2 - Supernova Company had the following summarized balance sheet on December 31, 20X1:
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Assets
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Accounts receivable
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$ 200,000
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Inventory
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450,000
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Property and plant (net)
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600,000
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Goodwill
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150,000
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Total
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$1,400,000
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Liabilities and Equity
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Notes payable
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$ 600,000
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Common stock, $5 par
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300,000
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Paid-in capital in excess of par
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400,000
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Retained earnings
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100,000
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Total
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$1,400,000
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The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20/share, for 100% of the common stock of Supernova Company. Redstar incurred acquisition costs of $5,000 and stock issuance costs of $5,000.
Required:
a. What journal entry will Redstar Corporation record for the investment in Supernova?
b. Prepare a supporting value analysis and determination and distribution of excess schedule?
c. Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.
Problem 3 - Selected information from the separate and consolidated balance sheets and income statements of Palo Alto, Inc. and its subsidiary, Stanford Co., as of December 31, 20X1, and for the year then ended is as follows:
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Palo Alto
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Stanford
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Consolidated
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Balance sheet accounts:
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Accounts receivable
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$ 26,000
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$ 19,000
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$ 42,000
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Inventory
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30,000
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25,000
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50,000
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Investment in Stanford
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67,000
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--
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--
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Stockholders' equity
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154,000
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50,000
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154,000
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Income statement accounts:
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Revenues
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$200,000
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$140,000
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$300,000
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Cost of goods sold
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150,000
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110,000
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225,000
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Gross profit
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50,000
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30,000
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75,000
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Equity in earnings of Stanford
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$ 9,000
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--
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--
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Net income
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$ 36,000
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$ 20,000
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$ 36,000
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Additional information:
During 20X1, Palo Alto sold goods to Stanford at the same markup on cost that Palo Alto uses for all sales. At December 31, 20X1, Stanford had not paid for all of these goods and still held 50% of them in inventory.
Palo Alto acquired its interest in Stanford five years earlier (as of December 31, 20X1).
Required: For each of the following items, calculate the required amount.
a. The amount of intercompany sales from Palo Alto to Stanford during 20X1.
b. The amount of Stanford's payable to Palo Alto for intercompany sales as of December 31, 20X1.
c. In Palo Alto's December 31, 20X1, consolidated balance sheet, the carrying amount of the inventory that Stanford purchased from Palo Alto.