Reference no: EM132779737
Question: Avery Company acquired the net assets of Iowa Company on June 1, 2020. The net assets acquired include plant assets that are provisionally estimated to have a fair value of $384,000 with a 9-year usable life and a salvage value of $24,000. Also buildings are provisionally estimated to have a fair value of $321,600 with a 10-year usable life and salvage value of $18,000. Depreciation is recorded based on sum of years' (SYD) digit method for plant assets and Double Declining Balance (DDB) method for buildings. Assume the plant assets were purchased on June 1, 2018 and buildings were originally acquired on June 1, 2019. Avery recorded gains on acquisition of $73,000.
At the end of December 2020, Avery prepared the following statements (includes Iowa Company for the last seven months):
Balance Sheet
Accounts Receivable.................. $100,000
Current liabilities................... .$ 170,000
Inventory.............................. 120,000
Bonds payable...................... 450,000
Equipment (net)..................... 200,000
Common stock ($1 par)........... 80,000
Plant assets (net)..................... 1,200,000
Paid-in Capital in excess of par.....1,100,000
Buildings 870,000
Retained earnings.................. 690,000
Total assets................. $2,490,000
Total liabilities and equity........ $2,490,000
Summary Income Statement
Sales revenue.............................................................. $780,000
Cost of goods sold........................................................ 510,000
Gross profit..................................................................
Operating expenses......................................................... $240,000 $270,000
Depreciation expense....................................................... 145,000 (385,000)
Gains on Acquisition....................................................... 73,000
Net Income/(Net Loss)............................................. $ (42,000)
In March 2021, the final estimated fair value of the acquired plant assets is $450,000 with a salvage value of $22,500 but with no change in the estimated useful life. The final estimated fair value of the acquired buildings is $198,000 with a salvage value of $36,000 but with no change in the estimated useful life.
1. Prepare any journal entries required in March 2021.
2. Prepare the revised balance sheet and income statement for 2020 that will be included in the 2021 comparative statements.