Question

2 XYZ Corporation expanded its operations by purchasing ABC Corporation on December 31, 2018, 3 The exchange was structured so that it was nontaxable. XYZ issued 14,000 shares of its $2 par stock 4 having a $30 market value for the net assets of ABC and paid cash for the following costs related to 7 9 6. The following balance sheet was prepared for ABC Corporation on the date of purchase. ABC Corporation Balance Sheet December 31, 2018 10 Liabilities and Equity 12 Current assets 150,000 Accounts payable 90,000 13 Inventory 35,000 Bonds Payable 85,000 14 Property, plant & Equipment: Stockholder's equity 15 Land 28,000 Common stock: 16 Building 165,000 ($10 par) 40,000 Accum depreciation (80,000) Retained earnings 153,0 193.000 18 Equipment 95,000 19 Accum depreciation (25.000) 20 Total assets $368,000 Total liabilities and Equity $368,000 22 The companies agreed that the following market values should replace the above book values 23 for the purpose of the purchase Building $200,000 Equipment 78,000 17

Answer 1

List of missing info in the question

1) Direct acquisition cost for which cash is paid

Answer to part A.

Assigned values

$150k - Current assets

$35k - Inventory

$28k - Land

$200k- Building

($60k) - DTL on building

$78k - Equipment

($23.4k) - DTL on equipment

($90k) - Accounts payable

($85k) - Bond payable

$232.6k total assigned value at the time of purchase.

Purchase consideration

14k shares at market value of $30 per share = $420,000

Goodwill = difference between purchase consideration and the total value assigned calculated above = $420,000 less $ 232,600 = $187,400.

Answer to part B.

Debit Current assets $150,000

Debit Inventory $35,000

Debit Land $28,000

Debit Building $200,000

Debit Equipment $78,000

Credit DTL $83,400

Credit Accounts payable $90,000

Credit Bond payable $85,000

Credit Share capital $28,000

Credit Share premium $392,000

Debit Goodwill $187,400