Reference no: EM131266477
On January 1, 2016, Parent Corporation acquired 100% of the common shares of Sub Corporation paying $1,800,000 in cash, $350,000 (present value) in contingent performance consideration to be paid if revenue targets are achieved during 2016, and issued 20,000 shares of Parent’s common shares ($10 par) at a fair value of $80 per share. Sub will continue to operate as a separate legal entity. In addition to the acquisition, Parent Corp. spent $65,000 in direct combination costs and $28,000 in stock issue costs.
In addition, Sub Corporation’s computers and equipment (20-year remaining life) were overvalued by $620,000, capitalized software (8-year life) was undervalued by $800,000, Notes payable were overvalued by $100,000 (5-year life), and unrecorded in-process research and development of $680,000 (unlimited life). The net assets of Sub Corp. are provided below:
Cash $430,000
Receivables (net) $160,000
Inventory 880,000
Comp. & Equipment (Net) 3,420,000
Capitalized Software (Net) 1,400,000
In-process R&D 0
Notes Payable (4,000,000)
Net assets $2,290,000
1. Prepare the allocation of the acquisition of Sub Corporation; show all of your calculations in good form:
1a. Prepare a schedule calculating the excess amortization as a result of the acquisition above:
2. Prepare the journal entry to record the acquisition of Sub Corp. on January 1, 2016:
3. Prepare the journal entry or entries to record the direct combination costs and the stock issue costs on January 1, 2016:
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