Reference no: EM13583799

Effective December 31, 2003, Zintel Corporation proposes to issue additional shares of its common stock in exchange for all the assets and liabilities of Smith Corporation and Platz Corporation, after which Smith and Platz will distribute the Zintel stock to their stockholders in complete liquidation and dissolution. Balance sheets of each of the corporations immediately prior to merger on December 31, 2003, follow. The common stock exchange ratio was negotiated to be 1:1 for both Smith and Platz.

 

	Zintel	Smith	Platz
Current assets	$1,600,000	$  350,000	$ 12,000
Long-term assets (net)	5,700,000	1,890,000	98,000
Total	$7,300,000	$2,240,000	$110,000
Current liabilities	$  700,000	$  110,000	$  9,000
Long-term debt	1,100,000	430,000	61,000
Common stock, $5 par value	2,500,000	700,000	20,000
Retained earnings	3,000,000	1,000,000	20,000
Total	$7,300,000	$2,240,000	$110,000

 

Required:

Prepare journal entries on Zintel's books to record the combination.  Assume the following: 

The identifiable assets and liabilities of Smith and Platz are all reflected in the balance sheets (above), and their recorded amounts are equal to their current fair values except for long-term assets.  The fair value of Smith's long-term assets exceed their book value by $20,000 and the fair value of Platz's long-term assets exceed their book values by $5,000. Zintel's common stock is traded actively and has a current market price of $15 per share. Prepare journal entries on Zintel's books to record the combination.

(AICPA adapted)

Problem 2-1  Consolidation

Condensed balance sheets for Phillips Company and Solina Company on January 1, 2003, are as follows:

 

	Phillips	Solina
Current assets	$180,000	$ 85,000
Plant and equipment (net)	450,000	140,000
Total assets	$ 630,000	$ 225,000
Total liabilities	$ 95,000	$ 35,000
Common stock, $10 par value	350,000	160,000
Other contributed capital	125,000	53,000
Retained earnings (deficit)	60,000	(23,000)
Total equities	$ 630,000	$ 225,000

On January 1, 2003, the stockholders of Phillips and Solina agreed to a consolidation whereby a new corporation, McGregor Company, would be formed to consolidate Phillips and Solina. McGregor Company issued 30,000 shares of its $20 par value common stock for the net assets of Phillips and Solina.

On the date of consolidation, the fair values of Phillip's and Solina's current assets and liabilities were equal to their book values. The fair value of plant and equipment for each company was: Phillips, $530,000; Solina, $150,000.

The investment banking house of Bradly and Bradly estimated that the fair value of McGregor Company's common stock was $35 per share. Phillips will incur $20,000 of direct acquisition costs and $6,000 in stock issue costs.

Required:

Prepare the journal entries to record the consolidation on the books of McGregor Company assuming that:

 

Problem 2-3 Purchase of Net Assets Using Bonds

On January 1, 2004, Perez Company acquired all the assets and assumed all the liabilities of Stalton Company and merged Stalton into Perez. In exchange for the net assets of Stalton, Perez gave its bonds payable with a maturity value of $600,000, a stated interest rate of 10%, interest payable semiannually on June 30 and December 31, a maturity date of January 1, 2011, and a yield rate of 12%.

Balance sheets for Perez and Stalton (as well as fair value data) on January 1, 2004, were as follows:

 

	Perez	Stalton
	Book Value	Book Value	Fair Value
Cash	$  250,000	$114,000	$114,000
Receivables	352,700	150,000	135,000
Inventories	848,300	232,000	310,000
Land	700,000	100,000	315,000
Buildings	950,000	410,000	54,900
Accumulated depreciation -       buildings	(325,000)	(170,500)
Equipment	262,750	136,450	123,700
Accumulated depreciation -       equipment	(70,050)	(90,450)	(84,250)
Total assets	$ 2,968,700	$ 881,500	$ 968,350
Current liabilities	$  292,700	$95,300	$95,300
Bonds payable, 8% due       1/1/2013, Interest       payable 6/30 and 12/31		300,000	260,000
Common stock, $15 par value	1,200,000
Common stock, $5 par value		236,500
Other contributed capital	950,000	170,000
Retained earnings	526,000	79,700
Total equities	$ 2,968,700	$ 881,500

 

Required:

Prepare the journal entry on the books of Perez Company to record the acquisition of Stalton Company's assets and liabilities in exchange for the bonds.