Reference no: EM131781356

Problem 1 - On January 1, 20X5, Brown Inc. acquired Larson Company's net assets in exchange for Brown's common stock with a par value of $100,000 and a fair value of $800,000. Brown also paid $10,000 in direct acquisition costs and $15,000 in stock issuance costs.

On this date, Larson's condensed account balances showed the following:

	Book Value	Fair Value
Current Assets	$280,000	$370,000
Plant and Equipment	440,000	480,000
Accumulated Depreciation	(100,000)
Intangibles - Patents	80,000	120,000
Current Liabilities	(140,000)	(140,000)
Long-Term Debt	(100,000)	(110,000)
Common Stock	(200,000)
Other Paid-in Capital	(120,000)
Retained Earnings	(140,000)

Required: Record Brown's purchase of Larson Company's net assets.

Problem 2 - Supernova Company had the following summarized balance sheet on December 31, 20X1:

Assets
Accounts receivable	$   200,000
Inventory	450,000
Property and plant (net)	600,000
Goodwill	150,000
Total	$1,400,000
Liabilities and Equity
Notes payable	$   600,000
Common stock, $5 par	300,000
Paid-in capital in excess of par	400,000
Retained earnings	100,000
Total	$1,400,000

The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.

Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20/share, for 100% of the common stock of Supernova Company. Redstar incurred  acquisition costs of $5,000 and stock issuance costs of $5,000.

Required:

a. What journal entry will Redstar Corporation record for the investment in Supernova?

b. Prepare a supporting value analysis and determination and distribution of excess schedule?

c. Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.

Problem 3 - Selected information from the separate and consolidated balance sheets and income statements of Palo Alto, Inc. and its subsidiary, Stanford Co., as of December 31, 20X1, and for the year then ended is as follows:

	Palo Alto	Stanford	Consolidated
Balance sheet accounts:
Accounts receivable	$  26,000	$  19,000	$  42,000
Inventory	30,000	25,000	50,000
Investment in Stanford	67,000	--	--
Stockholders' equity	154,000	50,000	154,000
Income statement accounts:
Revenues	$200,000	$140,000	$300,000
Cost of goods sold	150,000	110,000	225,000
Gross profit	50,000	30,000	75,000
Equity in earnings of Stanford	$    9,000	--	--
Net income	$  36,000	$  20,000	$  36,000

Additional information:

During 20X1, Palo Alto sold goods to Stanford at the same markup on cost that Palo Alto uses for all sales. At December 31, 20X1, Stanford had not paid for all of these goods and still held 50% of them in inventory.

Palo Alto acquired its interest in Stanford five years earlier (as of December 31, 20X1).

Required: For each of the following items, calculate the required amount.

a. The amount of intercompany sales from Palo Alto to Stanford during 20X1.

b. The amount of Stanford's payable to Palo Alto for intercompany sales as of December 31, 20X1.

c. In Palo Alto's December 31, 20X1, consolidated balance sheet, the carrying amount of the inventory that Stanford purchased from Palo Alto.