Question

CASE 1.3 Holton-Central Holdings Inc. Holton Chairs had been an innovative designer and producer of quality office chairs since Arnold Holton founded the firm in Grand Rapids, Michigan, in 1938. In 1947 Holton purchased Central Chairs and renamed itself Holton-Central Inc. When Mr. Holton died in 1994, long-time executives managed the firm for his heirs. Through a variety of circumstances, including foreign competition, outdated production equipment and processes, expensive wage contracts, and low quality, Holton- Central gradually became unprofitable. In early 2009, Holton-Central Inc., .declared bankruptcy and closed its doors. Because of concerns about chemical contaminants at Holton-Central's original factory (no longer in use), no one would buy the corporation as a going concern. Instead, one bidder offered to buy Holton-Central's assets, except for the original factory, and resume operations at the current production facility under the Holton-Central name That bidder, Belmont Office Furniture, produced high-quality office desks. Peter Cardell purchased Belmont Office Furniture's assets out of bankruptcy in 2003 within four years he increased revenues by 65% and returned Belmont to profitability. By 2009, Mr. Cardell decided to acquire another office furniture company. On July 1 2009, the Holton-Central bankruptcy judge accepted Belmont's $4,765,000 offer for Holton-Central's assets and accounts payable. The $4,765,000 purchase price equaled the market value of the tangible assets, minus $875.000 of accounts payable, plus $265,000, which Mr. Cardell considered goodwill: Raw material inventory Work-in-process inventory Finished goods inventory Equipment (5-year life) Building (20-year life) $175,000 5220,000 $115,000 $450,000 $3,600,000 $815,000 $5,375,000 $875,000 $4,500,000 $265,000 $4,765,000 Land Total tangible assets Less: Accounts payable Net tangible assets Goodwill Total purchase price On July 1,2009, the acquisition was completed as follows: for all 3,900,000 shares of Holton-Central Holdings' S.01 par value common stock. bankruptcy, the principal would be repaid in six $1 million payments each July 1, 1. Belmont Office Furniture formed Holton-Central Holdings and paid $3.9 million 2. Holton-Central Holdings borrowed $6,000,000 to help Holton-Central exit from

Answer 1

entries in the books of Helton- Centeral’s ( amount in $)

Date	Particulars	Debit	Credit
	Accounts payable a/c Dr         To cash	875000	875000
	Utilities ,professional services and other admin expenses a/c Dr                    To Cash	154500	154500
	Salaries and Wages a/c dr          To cash	1408000	1408000
	Selling and Marketing expenses a/c dr              To cash	2785000	2785000
1st oct 19	Machinery a/c dr         To Cash	900000	900000
	Insurance policy a/c dr       To cash	228000	228000
	Work in process inventory a/c dr       Raw material inventory	4935000	4935000
	Work in progress inventory a/c dr          To wages a/c	7878000	7878000
	Wages a/c dr       To Cash	7878000	7878000
	Work in progress inventory a/c dr          To overheads a/c          To Depreciation a/c	6662000	6400000 262000
	Overheads a/c dr           To Cash	6400000	6400000
	Finished goods inventory a/c dr      To Work in progress inventory a/c	19123000	19123000
	Cost of goods sold a/c dr        Finished goods inventory a/c	18593000	18593000
	Assets a/c dr          To Depreciation a/c	86000	86000
	Interest Expense a/c dr        To Interest expense Payable a/c	60000	60000
	Insurance expense a/c dr          To Insurance expense payable a/c	95000	95000
	Repair of chairs expenses a/c dr               To Cash	360000	360000
	Repair of chairs expenses a/c dr               To provision for Repair of chairs expenses	560000	560000
	Income tax expense a/c dr            Income tax payable a/c	365000	365000