On January 1, 2020, Wasp Corporation purchased the net assets of Mud Dauber Company for $1,475,000...
- On January 1, 2020, Wasp Corporation purchased the net assets of Mud Dauber Company for $1,475,000 cash. On this date, a condensed balance sheet for Mud Dauber showed:
|
|
Book |
Fair |
|
|
Value |
Value |
|
Current Assets |
$ 500,000 |
$750,000 |
|
Long-Term Investments in Securities |
200,000 |
175,000 |
|
Land |
100,000 |
500,000 |
|
Buildings (net) |
700,000 |
975,000 |
|
|
$1,500,000 |
|
|
|
|
|
|
Current Liabilities |
$ 300,000 |
$300,000 |
|
Long-Term Debt |
550,000 |
525,000 |
|
Common Stock (no-par) |
300,000 |
|
|
Retained Earnings |
350,000 |
|
|
|
$1,500,000 |
|
Required:
Record the entry on Wasp’s books for the acquisition of Mud Dauber’s net assets.
Homework Answers
| Working Notes:1 | ||||
| CALCULATION OF NET ASSETS OF Mud Dauber | ||||
| Particulars | Amount | Amount | ||
| Current Assets | $ 7,50,000 | |||
| Long Term Investment | $ 1,75,000 | |||
| Land | $ 5,00,000 | |||
| Building | $ 9,75,000 | |||
| Total Assets | $ 24,00,000 | |||
| Less: Liabilities | ||||
| Current Liabilities | $ 3,00,000 | |||
| Long Term Debt | $ 5,25,000 | |||
| $ 8,25,000 | ||||
| Net Assets Acquired | $ 15,75,000 | |||
| Working Notes:2 | ||||
| CALCULATION OF THE GOODWILL/ CAPITAL RESERVE ON BUSINESS PURCHASE | ||||
| Capital Reserve = | Net Assets | "-" | Value of Business Purchase | |
| Capital Reserve = | $ 15,75,000 | "-" | $ 14,75,000 | |
| Capital Reserve = | $ 1,00,000 | |||
| Solution: | ||||
| Date | Account Title | Debit | Credit | |
| Jan 01. 2020 | Business Purchase | $14,75,000 | ||
| Mud Dauber | $14,75,000 | |||
| (To Record the Business Purchase) | ||||
| Jan 01. 2020 | Current Assets | $7,50,000 | ||
| Long Term Investment | $1,75,000 | |||
| Land | $5,00,000 | |||
| Building | $9,75,000 | |||
| Current Liabilities | $3,00,000 | |||
| Long Term Debt | $5,25,000 | |||
| Capital Reserve | $1,00,000 | |||
| Business Purchase | $14,75,000 | |||
| (To Record the Assets and liabilities of Business Purchase) | ||||
| Jan 01. 2020 | Mad Dauber | $14,75,000 | ||
| Cash | $14,75,000 | |||
| (To Record the payment of Business Purchase) | ||||
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