Reference no: EM131210573
Price Company issued 8,000 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company will be merged into Price Company.
On the date of the combination, Price Company common stock had a fair value of $30 per share. Balance sheets for Price Company and Sims Company immediately prior to the combination were:
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Price
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Sims
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Current assets
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$ 438,000
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$ 64,000
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Plant and equipment (net)
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575,000
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136,000
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Total
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$1,013,000
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$200,000
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Liabilities
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$ 300,000
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$ 50,000
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Common stock, $20 par value
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550,000
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80,000
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Other contributed capital
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72,500
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20,000
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Retained earnings
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90,500
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50,000
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Total
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$1,013,000
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$200,000
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Required:
Select the letter of the best answer.
•If the business combination is treated as a purchase and Sims Company"s net assets have a fair value of $228,800, Price Company"s balance sheet immediately after the combination will include goodwill of
(a) $10,200.
(b) $12,800.
(c) $11,200.
(d) $18,800.
•If the business combination is treated as a purchase and the fair value of Sims Company"s current assets is $90,000, its plant and equipment is $242,000, and its liabilities are $56,000, Price Company"s balance sheet immediately after the combination will include
(a) Negative goodwill of $36,000.
(b) Plant and equipment of $817,000.
(c) Gain of $36,000.
(d) Goodwill of $36,000.
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