Parvin Corporation issues 40,000 shares of its own $10 par common stock for all
ID: 2395751 • Letter: P
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.
Explanation / Answer
1.a.
Working:
1.b.
2.a.
Working:
2.b.
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 )