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In: Accounting

Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately...

Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company’s balance sheet was as follows:

                                                                           Book Value      Fair Value

Cash                                                                $ 120,000           $ 120,000

Receivables (net)                                               192,000              250,000

Inventory                                                             360,000             400,000

Plant and equipment (net)                                   480,000             600,000

Land                                                                    420,000             600,000

Total assets                                                   $1,572,000            $1,944,000

Liabilities                                                          $ 540,000           $ 600,000

Common stock ($5 par value)                             480,000

Other contributed capital                                     132,000

Retained earnings                                                420,000

Total equities                                                   $1,572,000

Required:

A. Prepare the journal entries on the books of Preston Company to record the purchase of the assets and assumption of the liabilities of Saville Company if the amount paid was $1,600,000 in cash.

B. Repeat the requirement in (A) assuming that the amount paid was $1000,000.

C- Repeat the requirement in (A) assuming that the Preston Company issued 25000 shares of its common stock (par value $40 , fair value $ 50).

Solutions

Expert Solution

ANSWER

Part A

Receivables

250000

Inventory

400000

Plant and Equipment

600000

Land

600000

Goodwill ($2200000 - $1850000)

350,000

         Liabilities

600000

         Cash

1600000

Part B

Receivables

250000

Inventory

400000

Plant and Equipment

600000

Land

600000

         Liabilities

600000

         Cash

1000000

         Gain on Acquisition of Saville - Ordinary ($1850000 - $1000000-600000)

250,000

Part C

Receivables

250000

Inventory

400000

Plant and Equipment

600000

Land

600000

         Liabilities

600000
common stock (25000*$40) 1000000
additional capital in excess -par (25000*$10) 250000

ekkarill92 answered 2 years ago
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