Question

Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on January 2, 2020. As compensation, Pretzel Company gave 30,000 shares of its common stock, 15,000 shares of its 10% preferred stock, and cash of $50,000 to the stockholders of Salt Company. On the acquisition date, Pretzel Company stock had the following characteristics:

PRETZEL COMPANY
Stock	Par Value	Fair Value
Common	$ 10	$ 25
Preferred	100	100

Immediately prior to the acquisition, Salt Company's balance sheet reported the following book values and fair values:

SALT COMPANY Balance SheetY January 2, 2020
	Book value	Fair value
Cash	$   165,000	$   165,000
Accounts receivable (net of $11,000 allowance)	220,000	198,000
Inventory—LIFO cost	275,000	330,000
Land	396,000	550,000
Buildings and equipment (net)	1,144,000	1,144,000
Total assets	$ 2,200,000	$ 2,387,000
Current liabilities	$ 275,000	$  275,000
Bonds Payable, 10%	450,000	495,000
Common stock, $5 par value	770,000
Other contributed capital	396,000
Retained earnings	309,000
Total liabilities and stockholders' equity	$ 2,200,000

Prepare the journal entry on the books of Pretzel Company to record the acquisition of the assets and assumption of the liabilities of Salt Company.

Answer 1

All assets and liabilities taken and given will be on fair market value:

First we will calculate Goodwill:

Particulars	Amount in $
Total Payments
Common Stock (30,000 *$25)	750,000
Preferred Stock, 10% (15000*$100)	1,500,000
Cash	50,000
Total	2,300,000
Net receipts
Accout Receiveble	198,000
Inventory	330,000
Land	550,000
Building & Equipments	1,144,000
Current Liabilities	(275,000)
Bonds Payable, 10%	(495,000)
Total	1,452,000
Goodwill (Total Payment - Net Receipts)	848,000

Accounting Entry:

Accounts Title	Debit	Credit
Accounts Receivale*	$ 231,000
Inventory	$ 330,000
Land	$ 550,000
Building & Equipments	$ 1,144,000
Goodwill	$ 848,000
Current Liabilities		$ 275,000
Bonds payable		$ 495,000
Allowance for Accounts Receivale*		$ 33,000
Common Stock		$ 300,000
APIC - Common Stock		$ 450,000
Preferred Stock, 10%		$ 1,500,000
Cash		$ 50,000

* Accounts receivale is booked at original value ($ 220,000 + $ 11,000) & diffrence is taken for allowance for accounts receivalbe = Original value - Fair Value = $ 231,000 - $ 198,000 = $ 33,000

Note: Common stock issued at $10 and remaining $15 per share taken into APIV - Common Stock account.