Reference no: EM131792002

Question - On January 1, 2003, Cale Corp. paid $1,020,000 to purchase Kaltop Co. Kaltop maintained separate incorporation.

Cale used the equity method to account for the investment. Cale also paid $20,000 to investment bankers to arrange the acquisition. Since it was a cash purchase, there were no issue costs for securities.

Katop's assets, liabilities, and stockholders' equity accounts were as follows:

1-Jan-03 FAIR BOOKMARKET VALUEVALUE dr (cr)dr (cr)DIFFERENCE

CURRENT ASSET $120,000 $120,000 $-

LAND $72,000 $192,000 $120,000

BUILDING (20 YR LIFE) $240,000 $268,000 $28,000

EQUIPMENT (10 YR LIFE) $540,000 $516,000 $(24,000)

CURRENT LIABILITIES $(24,000) $(24,000) $-

LONG TERM LIABILITIES $(120,000) $(120,000) $-

COMMON STOCK $(228,000)

ADDITIONAL PAID IN CAPITAL $(384,000)

RETAINED EARNINGS $(216,000)

CHECK TOTAL $- $952,000 $124,000

PARTIAL WORKSHEET FOR DECEMBER 31, 2003: PART D

CALEKALTOPELIMINATIONS

dr(cr)dr(cr)drcr

INCOME STATEMENT:

Revenue $(350,000)

Expenses $224,000 E $-

Equity income in subsidiary $- I $- $-

Net income $(126,000)

RETAINED EARNINGS STATEMENT:

Retained earnings 1/1/2003 $(216,000) S $216,000

Net income $(126,000)

Less dividends paid $48,000 D $48,000

Retained earning 12/31/2003 $(294,000)

BALANCE SHEET 12/31/2003

Current assets $162,000

Land $72,000 A $-

Buildings $228,000 A $- E $-

Equipment $486,000 E $- A $-

Goodwill (if any) A $-

Investment in Kaltop $- D $48,000 S $828,000 $(780,000)

A $-

I $-

Current liabilities

Long term liabilities $(120,000)

Common stock $(228,000) S $228,000

Additional paid in capital $(384,000) S $384,000

Retained earnings 1/1/2003 $(216,000)

TOTAL BALANCE SHEET $-

REQUIRED:

A. Determine any investment cost over the book value of the net assets of Kaltop and any goodwill.

B. Create a journal entry to record the purchase of Kaltop's stock on January 1, 2003.