1) On January 1, 20X8, Nebraska Corporation acquired Mercantile Corporation's net assets by paying $190,000 cash. Balance sheet data for the two companies and fair value information for Mercantile Corporation immediately before the business combination are given below:
Nebraska |
Mercantile |
||||||||||||||
Book Value |
Book Value |
Fair Value |
|||||||||||||
Cash |
$ |
200,000 |
$ |
30,000 |
$ |
30,000 |
|||||||||
Accounts Receivable |
40,000 |
22,000 |
22,000 |
||||||||||||
Inventory |
120,000 |
25,000 |
31,000 |
||||||||||||
Patents |
50,000 |
20,000 |
45,000 |
||||||||||||
Buildings and Equipment |
330,000 |
250,000 |
170,000 |
||||||||||||
Less: Accumulated Depreciation |
− |
140,000 |
− |
150,000 |
|||||||||||
Total Assets |
$ |
600,000 |
$ |
197,000 |
$ |
298,000 |
|||||||||
Accounts Payable |
$ |
85,000 |
$ |
55,000 |
$ |
55,000 |
|||||||||
Notes Payable |
100,000 |
80,000 |
80,000 |
||||||||||||
Common Stock: |
|||||||||||||||
$5 par value |
120,000 |
||||||||||||||
$2 par value |
20,000 |
||||||||||||||
Additional Paid-In Capital |
140,000 |
25,000 |
|||||||||||||
Retained Earnings |
155,000 |
17,000 |
|||||||||||||
Total Liabilities and Equities |
$ |
600,000 |
$ |
197,000 |
|||||||||||
Required:
In the Books of Nebraska Corporation |
|||
Journal Entries for Acquisition |
|||
Date |
Particulars |
Debit $ |
Credit $ |
a. |
Business Purchase A/C - Dr |
190000 |
|
Liquidators of Mercantile Corporation - Cr |
190000 |
||
(Mercantile corp acquired) |
|||
b. |
Cash A/C -Dr |
30000 |
|
Accounts Receivable A/C - Dr |
22000 |
||
Inventory A/C - Dr |
31000 |
||
Patents A/C - Dr |
45000 |
||
Buildings and Equipment A/C - Dr |
170000 |
||
Goodwill A/C - Dr (Balancing figure) |
27000 |
||
Accounts Payable A/C - Cr |
55000 |
||
Notes Payable A/C - Cr |
80000 |
||
Business Purchase A/C - Cr |
190000 |
||
(net assets of Mercantile corporation take over at fair value) |
|||
b. |
Liquidators of Mercantile Corporation - Dr |
190000 |
|
Cash A/C |
190000 |
||
(Purchase consideration paid) |
|||
If purchase price was $135000 |
|||
a. |
Business Purchase A/C - Dr |
135000 |
|
Liquidators of Mercantile Corporation - Cr |
135000 |
||
(Mercantile corp acquired) |
|||
b. |
Cash A/C -Dr |
30000 |
|
Accounts Receivable A/C - Dr |
22000 |
||
Inventory A/C - Dr |
31000 |
||
Patents A/C - Dr |
45000 |
||
Buildings and Equipment A/C - Dr (net of Dep) |
170000 |
||
Accounts Payable A/C - Cr |
55000 |
||
Notes Payable A/C - Cr |
80000 |
||
Business Purchase A/C - Cr |
135000 |
||
Capital Reserve - Dr (Balancing figure) |
28000 |
||
(net assets of Mercantile corporation take over at fair value) |
|||
b. |
Liquidators of Mercantile Corporation - Dr |
135000 |
|
Cash A/C |
135000 |
||
(Purchase consideration paid) |
Please feel free to comment if any changes or further explaination required for the answer.
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