Problem

Pat Corporation paid $5,000,000 for Saw Corporation’s voting common stock on January 2, 20...

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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