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The following are pre-acquisition financial balances for Paladium Corporation and Seminary Corporation as of December 31. Also included are fair values for Seminary Corporation accounts.
On December 31, Paladium acquires Seminary's outstanding stock by paying $380,000 in cash and issuing 10,000 shares of its own common stock with a fair value of $40 per share. Paladium paid legal and accounting fees of $30,000 as well as $5,000 in stock issuance costs.
Paladium Book Values December 31
Seminary Book Values December 31
Seminary Fair Values December 31
Debit
Credit
Cash
420,000
120,000
Receivables
220,000
300,000
280,000
Inventory
410,000
210,000
200,000
Land
600,000
130,000
190,000
Building and equipment (net)
270,000
340,000
Franchise agreements
240,000
Accounts payable
160,000
Accrued expenses
110,000
30,000
40,000
Long-term liabilities
900,000
510,000
Common stock - $20 par value
660,000
Common stock - $5 par value
Additional paid-in capital
70,000
90,000
Retained earnings -Jan 1
390,000
Revenues
980,000
330,000
Expenses
940,000
310,000
Totals
3.410,000
3,410,000
1,530,000
Question a. Record the investment by Paladium in Seminary using the Equity Method of Accounting.
Question b. Unrelated to part a above, treat the acquisition of Seminary by Paladium as a net asset acquisition where Paladium acquires the assets and assumes the liabilities with the payment of cash and the issue of its common stock. Make a journal entry on the books of Paladium to record the net asset acquisition.
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