Question

3. Acquisition Method Prance Company acquired all the assets and liabilities of Seaver Company and properly recorded the transaction under the acquisition method. Seaver's balance sheet prior to the transaction was as follows: Book Value Fair Value A/R $ 175,000 $175,000 Inventory 465,000 500,000 20,000 20,000 Equipment Building 90,000 85,000 Land 30,000 60,000 Total Assets $ 780,000 $840.000 Accounts Payable $ 120,000 $130,000 Common Stock ($5 par) 100,000 100,000 Pald in Capital 320,000 310,000 Retained Earnings 240,000 300,000 Total Liab & Equity $ 780,000 $840,000 a) Prepare the journal entry on the books of Prance to record the acquisition of Seaver's net assets, assuming that Prance paid $750,000. b) Prepare the journal entry on the books of Prance to record the acquisition of Seaver's net assets, assuming that Prance paid $690,000.

Answer 1

A/R 6 8 9 10 1 JOURNAL ENTRY TO RECORD PURCHASE ($750000) 2 Note; Assets and liabilities are acquired at their fair values and not book values 3. The difference in the Net assets acquired and purchase consideration is goodwill or capital reserve 4 Particulars Debit Credit 5 175000 JOURNAL WHEN PURCHASED FOR $690000 Inventory 500000 Particulars Debit Credit 7 Equipment 20000 A/R 175000 Building 90000 Inventory 500000 Land 30000 Equipment 20000 Goodwill 65000 Building 90000 11 Accounts payable 130000 Land 30000 Sewer Company 750000 Goodwill 5000 13 (Being net assets acquired) Accounts payable 130000 Sewer Company 690000 15 Sewer Company 750000 (Being net assets acquired) Bank 750000 17 (Being amount paid) Sewer Company 690000 Bank 690000 Value of net assets acquired= 685000 (Being amount paid) Value paid 750000 Goodwill 65000 Value of net assets acquired= 685000 22 Value paid 690000 Goodwill 5000 12 14 16 w No 10 00 24