Question

Parvin Corporation issues 40,000 shares of its own $10 par common stock for all the outstanding stock of Sacks Corporation in merger consummated on October 1, 2012 (Sacks Corporation dissolved). On this date, Parvin Corporation paid $10,000 for direct cost, and $3,000 for indirect cost of business combination as well as $5,000 for cost of printing and issuing new shares.

Summary balance sheet data for the two companies at October 1, 2012, just before combination, are as follow:

                                                            Parvin    Corporation              Sacks       Corporation

                                                            Book Value           Fair Value             Book Value              Fair Value

_____________________________________________________________________________

Cash                                                    $ 200,000       $ 200,000       $   50,000        $     50,000

Inventory                                                800,000           900,000          150,000             200,000

Land                                                   1,000,000       1,300,000          300,000             400,000

Equipment net                                    3,000,000       2,900,000          400,000             450,000

Patent                                                        ----                  ----                   ----                   100,000

Total assets                                        $5,000,000      $5,300,000      $ 900,000        $1,200,000

Accounts Payable                               $1,200,000      $1,200,000      $200,000         $   250,000

Common stock--$10 par                     3,000,000                                350,000

Additional paid-in capital                        300,000                              100,000

Retained earnings                                    500,000                              250,000

Total Equities                          $5,000,000                              $900,000        

Required (Show all your calculations):

Assuming the market value of Parvin Corporation stock is $30:

a.         Show the journal entries in Parvin's book for the acquisition of Sacks' net assets.

      b.         Prepare Parvin Corporation Balance sheet right after the acquisition.

2.         Assuming the market value of Parvin Corporation stock is $15:

a.         Show the journal entries in Parvin's book for the acquisition of Sacks' net assets.

      b.         Prepare Parvin Corporation Balance sheet right after the acquisition.

Answer 1

1.a.

The journal entries for the acquisition will be as under
Account Title	Debit	Credit
Investment in Sacks Corp.	1200000
Common Stock		400000
Additional paid-in-capital , Common Stock		800000
(Issue of 40,000 shares of $10 par with a fair value of $30)
Cash	50000
Inventory	200000
Land	400000
Equipment , net	450000
Patent	100000
Goodwill	250000
Accounts Payable		250000
Investment in Sacks Corp.		1200000
(To record the acquisition of assets and liabilities )

Working:

Net assets Acquired
Cash	50000
Inventory	200000
Land	400000
Equipment , net	450000
Patent	100000
Accounts Payable	-250000
Net Assets Acquired	950000
Price paid (40,000 shares @ $30 each)	1200000
Goodwill	250000
The expenses incurred are expensed and therefore
the retained earnings and the cash will be reduced
by the amount $18,000 ($10,000+$3,000+$5,000)

1.b.

PARVIN CORPORATION
Balance sheet after acquisiton
October 1, 2012
	Parvin Corporation	Sacks Corporation	Post Acquisition
				Cash	182000	50000	232000
Inventory	800000	200000	1000000
Land	1000000	400000	1400000
Equipment , net	3000000	450000	3450000
Patent		100000	100000
Investment in Sacks Corp.	1200000		0
Goodwill			250000
Total Assets	6182000	1200000	6432000
Accounts Payable	1200000	250000	1450000
Common Stock	3400000	350000	3400000
Additional paid-in-capital , Common Stock	1100000	100000	1100000
Retained Earnings	482000	250000	482000
Total liabilities and equity	6182000	950000	6432000

2.a.

The journal entries for the acquisition will be as under
Account Title	Debit	Credit
Investment in Sacks Corp.	600000
Common Stock		400000
Additional paid-in-capital , Common Stock		200000
(Issue of 40,000 shares of $10 par with a fair value of $15)
Cash	50000
Inventory	200000
Land	400000
Equipment , net	450000
Patent	100000
Accounts Payable		250000
Bargain purchase		350000
Incestment in Sacks Corp.		600000
(To record the acquisition of assets and liabilities )

Working:

Net assets Acquired
Cash	50000
Inventory	200000
Land	400000
Equipment , net	450000
Patent	100000
Accounts Payable	-250000
Net Assets Acquired	950000
	0
Price paid (40,000 shares @ $15 each)	600000
	0
Bargain purchase	350000
The expenses incurred are expensed and therefore
the retained earnings and the cash will be reduced
by the amount $18,000 ($10,000+$3,000+$5,000)

2.b.

PARVIN CORPORATION
Balance sheet after acquisiton
October 1, 2012
	Parvin Corporation	Sacks Corporation	Post Acquisition
				Cash	182000	50000	232000
Inventory	800000	200000	1000000
Land	1000000	400000	1400000
Equipment , net	3000000	450000	3450000
Patent		100000	100000
Investment in Sacks Corp.	600000		0
Total Assets	5582000	1200000	6182000
Accounts Payable	1200000	250000	1450000
Bargain Purchase			350000
Common Stock	3400000	350000	3400000
Additiona paid-in-capital , Common Stock	500000	100000	500000
Retained Earnings	482000	250000	482000
Total liabilities and equity	5582000	950000	6182000