Reference no: EM132319367
Question
Internet Corporation is considering the acquisition of Homepage Corporation and has obtained the following audited condensed balance sheet:
Homepage Corporation
Balance Sheet
December 31, 20X5
Assets Liabilities and Equity
Current assets.... $ 40,000 Current Liabilities.......... $ 60,000
Land.............. 20,000 Capital Stock (50,000 shares,
Buildings (net)... 80,000 $1 par value)................ 50,000
Equipment (net)... 60,000 Other Paid-in Capital........ 20,000
Retained Earnings............. 70,000
$200,000 $200,000
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Internet also acquired the following fair values for Homepage's assets and liabilities:
Current assets......................................... $ 55,000
Land................................................... 60,000
Buildings (net)........................................ 90,000
Equipment (net)........................................ 75,000
Current Liabilities.................................... (60,000)
$220,000
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Internet and Homepage agree on a price of $280,000 for Homepage's net assets. Prepare the necessary journal entry to record the purchase given the following scenarios:
a. Internet pays cash for Homepage Corporation and incurs $5,000 of direct acquisition costs.
b. Internet issues its $5 par value stock as consideration. The fair value of the stock at the acquisition date is $50 per share. Additionally, Internet incurs $5,000 of security issuance costs.