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1. Phoster Corporation established Skine Company as a wholly owned subsidiary. Phoster reported the following balance sheet amounts immediately before and after it transferred assets and accounts payable to Skine Company in exchange for 4,000 shares of $10 par value common stock:
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Amount Reported |
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Before Transfer |
After Transfer |
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Assets |
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Cash |
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$ |
47,000 |
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$ |
21,000 |
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Accounts Receivable |
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78,000 |
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33,000 |
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Inventory |
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37,000 |
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21,000 |
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Investment in Skine Company |
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96,000 |
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Land |
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19,000 |
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16,000 |
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Depreciable Assets |
$ |
191,000 |
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$ |
107,000 |
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Accumulated Depreciation |
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95,000 |
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96,000 |
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38,000 |
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69,000 |
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Total Assets |
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$ |
277,000 |
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$ |
256,000 |
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Liabilities and Equities |
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Accounts Payable |
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$ |
40,000 |
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$ |
19,000 |
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Bonds Payable |
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78,000 |
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78,000 |
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Common Stock |
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55,000 |
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55,000 |
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Retained Earnings |
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104,000 |
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104,000 |
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Total Liabilities and Equities |
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$ |
277,000 |
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$ |
256,000 |
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Required:
a. & b. Prepare the journal entry that Phoster recorded when it transferred the assets to Skine, and the entry that Skine recorded for the receipt of assets and issuance of common stock to Phoster.
2. Spur Corporation reported the following balance sheet amounts on December 31, 20X1:
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Balance Sheet Item |
Historical Cost |
Fair Value |
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Assets |
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Cash & Receivables |
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$ |
60,000 |
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$ |
40,000 |
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Inventory |
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117,000 |
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148,000 |
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Land |
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41,000 |
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29,000 |
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Plant & Equipment |
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406,000 |
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345,000 |
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Less: Accumulated Depreciation |
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(169,000 |
) |
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Patent |
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129,000 |
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Total Assets |
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$ |
455,000 |
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$ |
691,000 |
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Liabilities and Equities |
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Accounts Payable |
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$ |
64,000 |
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$ |
69,000 |
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Common Stock |
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183,000 |
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Additional Paid-In Capital |
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19,000 |
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Retained Earnings |
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189,000 |
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Total Liabilities & Equities |
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$ |
455,000 |
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Required:
Planket acquired Spur Corporation’s assets and liabilities for $675,000 cash on December 31, 20X1. Give the entry that Planket made to record the purchase.
3. Prant Company acquired all of Sedford Corporation’s assets and liabilities on January 1, 20X2, in a business combination. At that date, Sedford reported assets with a book value of $632,000 and liabilities of $362,000. Prant noted that Sedford had $54,000 of capitalized research and development costs on its books at the acquisition date that did not appear to be of value. Prant also determined that patents developed by Sedford had a fair value of $132,000 but had not been recorded by Sedford. Except for buildings and equipment, Prant determined the fair value of all other assets and liabilities reported by Sedford approximated the recorded amounts. In recording the transfer of assets and liabilities to its books, Prant recorded goodwill of $103,000. Prant paid $518,000 to acquire Sedford’s assets and liabilities. If the book value of Sedford’s buildings and equipment was $356,000 at the date of acquisition, what was their fair value?
4. On July 1, 20X2, Alan Enterprises merged with Terry Corporation through an exchange of stock and the subsequent liquidation of Terry. Alan issued 220,000 shares of its stock to affect the combination. The book values of Terry’s assets and liabilities were equal to their fair values at the date of combination, and the value of the shares exchanged was equal to Cherry’s book value. Information relating to income for the companies is as follows:
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20X1 |
Jan. 1–June 30, 20X2 |
July 1–Dec. 31, 20X2 |
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Net Income: |
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Alan Enterprises |
$ |
4,620,000 |
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$ |
2,510,000 |
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$ |
3,608,000 |
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Terry Corporation |
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1,350,000 |
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722,000 |
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— |
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Alan Enterprises had 1,200,000 shares of stock outstanding prior to the combination. Remember that when calculating earnings per share (EPS) for the year of the combination, the shares issued in the combination were not outstanding for the entire year.
Required:
Compute the net income and earnings-per-share amounts that would be reported in Alan's 20X2 comparative income statements for both 20X2 and 20X1.
