Business Combination with Goodwill
Anchor Corporation paid cash of $178,000 to acquire Zink Company’s net assets on February 1, 20X3. The balance sheet data for the two companies and fair value information for Zink immediately before the business combination were:
Balance Sheet Item | Anchor Corporation | Zink Company | |
Book Value | Book Value | Fair Value | |
Cash | $ 240,000 | $ 20,000 | $ 20,000 |
Accounts Receivable | 140,000 | 35,000 | 35,000 |
Inventory | 170,000 | 30,000 | 50,000 |
Patents | 80,000 | 40,000 | 60,000 |
Buildings and Equipment | 380,000 | 310,000 | 150,000 |
Less: Accumulated Depreciation | (190,000) | (200,000) |
|
Total Assets | $ 820,000 | $ 235,000 | $315,000 |
Accounts Payable | $ 85,000 | $ 55,000 | $ 55,000 |
Notes Payable | 150,000 | 120,000 | 120,000 |
Common Stock: |
|
|
|
$10 par value | 200,000 |
|
|
$6 par value |
| 18,000 |
|
Additional Paid-In Capital | 160,000 | 10,000 |
|
Retained Earnings | 225,000 | 32,000 |
|
Total Liabilities and Equities | $ 820,000 | $ 235,000 |
|
a. Give thejournal entry recorded by Anchor Corporation when it acquired Zink’s net assets.
b. Prepare a balance sheet for Anchor immediately following the acquisition.
c. Give thejournal entry to be recorded by Anchor if it acquires all of Zink’s common stock for $178,000.
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