Pat Corporation paid $5,000,000 for Saw Corporation’s voting common stock on January 2, 2011, and Saw was dissolved. The purchase price consisted of 100,000 shares of Pat’s common stock with a market value of $4,000,000, plus $1,000,000 cash. In addition, Pat paid $100,000 for registering and issuing the 100,000 shares of common stock and $200,000 for other costs of combination. Balance sheet information for the companies immediately before the acquisition is summarized as follows (in thousands):
| Pat | Saw | |
| Book Value | Book Value | Fair Value |
Cash | $ 6,000 | $ 480 | $ 480 |
Accounts receivable—net | 2,600 | 720 | 720 |
Notes receivable—net | 3,000 | 600 | 600 |
Inventories | 5,000 | 840 | 1,000 |
Other current assets | 1,400 | 360 | 400 |
Land | 4,000 | 200 | 400 |
Buildings—net | 18,000 | 1,200 | 2,400 |
Equipment—net | 20,000 | 1,600 | 1,200 |
Total assets | $60,000 | $6,000 | $7,200 |
Accounts payable | $ 2,000 | $ 600 | $ 600 |
Mortgage payable—10% | 10,000 | 1,400 | 1,200 |
Capital stock, $10 par | 20,000 | 2,000 |
|
Other paid-in capital | 16,000 | 1,200 |
|
Retained earnings | 12,000 | 800 |
|
Total equities | $60,000 | $6,000 |
|
REQUIRED
1. Prepare journal entries for Pat Corporation to record its acquisition of Saw Corporation, including all allocations to individual asset and liability accounts.
2. Prepare a balance sheet for Pat Corporation on January 2, 2011, immediately after the acquisition and dissolution of Saw.
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