Merger and Stock Investment Saxton Corporation purchases all of Taylor Company’s assets and liabilities on January...

Merger and Stock Investment

Saxton Corporation purchases all of Taylor Company’s assets and liabilities on January 1, 2016, for $15 million in cash. At the date of acquisition, Taylor’s reported assets consist of current assets of $10 million and plant and equipment of $70 million. It reports current liabilities of $16 million and long-term debt of $58 million. Investigation reveals that Taylor’s plant and equipment is overvalued by $2 million and it has an unreported customer database valued at $700,000.

a. Prepare the necessary journal entry on Saxton's books to record its acquisition of Taylor on January 1, 2016.

Enter all of your answers in thousands. For example, $1 million = $1,000 or $700,000 = $700.

General Journal
Description	Debit	Credit
Current assets	Answer	Answer
Plant and equipment	Answer	Answer
Customer database	Answer	Answer
AnswerGoodwillCashInvestment in TaylorEquity in net income of TaylorRetained earnings	Answer	Answer
Current liabilities	Answer	Answer
Long-term debt	Answer	Answer
AnswerGoodwillCashInvestment in TaylorEquity in net income of TaylorRetained earnings	Answer	Answer

b. Assume that Saxton purchases all of Taylor's voting stock on January 1, 2016, for $15 million in cash. Prepare the necessary journal entry on Saxton's books to record the acquisition.

Enter all of your answers in thousands. For example, $1 million = $1,000 or $700,000 = $700.

General Journal
Description	Debit	Credit
AnswerGoodwillCashInvestment in TaylorEquity in net income of TaylorRetained earnings	Answer	Answer
AnswerGoodwillCashInvestment in TaylorEquity in net income of TaylorRetained earnings	Answer	Answer

Solutions

Expert Solution

All working forms part of the answer
Requirement ‘a’

Assets acquired will be debited,
Liabilities acquired will be credited,
Cash paid will be credited.

Any difference between debit and credit side of journal after above treatment will be debited to Goodwill.

General Journal
Description	Debit	Credit
Current assets	$ 10,000.00
Plant and equipment [$ 70 million - $ 2 million overvalued]	$ 68,000.00
Customer database	$ 700.00
Answer: Goodwill	$ 10,300.00
Current liabilities		$ 16,000.00
Long-term debt		$ 58,000.00
Answer: Cash		$ 15,000.00

Requirement ‘b’

General Journal
Description	Debit	Credit
Answer: Investment in Taylor	$ 15,000.00
Answer: Cash		$ 15,000.00

ekkarill92 answered 1 year ago

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