Herman Corporation common stock purchased by Fred, Inc. 60%
Cash paid for stock purchase $312,000
Book value of Herman's assets and liabilities $300,000
Fair value of noncontrolling interest $208,000
Herman patents (12-year remaining life) were undervalued by $90,000
Customer list acquisition date fair value $130,000
Life of customer list in years 10
Intra-entity transfers:
Original Transfer Ending
Cost to Price Balance at
Year Herman to Fred Transfer Price
2011 $80,000 $100,000 $20,000
2012 100,000 125,000 40,000
2013 90,000 120,000 30,000
2013 inventory transfers not paid for by Fred at year end 50%
Book value of land sold by Fred to Herman $15,000
Sale price of land sold by Fred to Herman $22,000
Face value of Fred's bonds purchased by Herman $20,000
Cash interest rate of bonds purchased by Herman 8%
Fred's book value of bond liability at repurchase date $21,386
Effective yield of bonds 6%
Herman's bond acquisition price based on effective rate of 10% $18,732
Herman's reported accounts for 2013:
Net income $25,000
Beginning retained earnings $300,000
Dividends paid $4,000
Common stock $100,000