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Lucky's acquires Waterview, Inc

Accounting

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Lucky's acquires Waterview, Inc., by issuing 40,000 shares of $1 par common stock with a market price of $25 per share on the acquisition date and paying $125,000 cash. The assets and liabilities on Waterview's balance sheet were valued at fair values except equipment that was undervalued by $300,000. There was also an unrecorded patent valued at $40,000, as well as an unrecorded trademark valued at $75,000. In addition, the agreement provided for additional consideration, valued at $60,000, if certain earnings targets were met.

 

The pre-acquisition balance sheets for the two companies at acquisition date are presented below.

 Lucky's

Waterview

Cash$ 300,000

$ 260,000

Accounts receivable250,000

135,000

Inventory254,000

275,000

Property, plant, and equipment2,300,000

356,500

 $3,104,000

$1,026,500

   Accounts payable$  45,000

$  37,500

Salaries and taxes payable450,000

46,000

Notes payable500,000

450,000

Common stock250,000

60,000

Additional paid-in capital950,000

106,500

Retained earnings  909,000

  326,500

 $3,104,000

$1,026,500

 

Compute consolidated inventory.

Select one:

A. $604,000

B. $254,000

C. $ 21,000

D. $529,000