Parrot Incorporated purchased the assets and liabilities of Sparrow Company at t
ID: 2488170 • Letter: P
Question
Parrot Incorporated purchased the assets and liabilities of Sparrow Company at the close of business on December 31, 2013. Parrot borrowed $2,000,000 to complete this transaction, in addition to the $640,000 cash that they paid directly. The fair value and book value of Sparrow's recorded assets and liabilities as of the date of acquisition are listed below. In addition, Sparrow had a patent that had a fair value of $50,000.
Book Value Fair Value
Cash $120,000 $120,000
Inventories 220,000 250,000
Other current assets 630,000 600,000
Land 270,000 320,000
Plant assets-net 4,650,000 4,600,000
Total assets $5,890,000
Accounts payable $1,200,000 $1,200,000
Notes payable 2,100,000 2,100,000
Capital stock, $5 par 700,000
Additional paid-in capital 1,400,000
Retained earnings 490,000
Total liabilities & equities $5,890,000
Part 1: Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow survives as a separate legal entity.
Part 2: Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow will dissolve as a separate legal entity.
Explanation / Answer
Part 1.
Investment in sparrow 2640000
Cash 640000
Notes payable 2000000
Part 2.
Cash 120000
Inventory 250000
Other current asset 600000
Land 320000
Plant asset 4600000
Patent 50000
Account payables ..1200000
Notes payables. 2100000
Cash 640000
Notes payable. 2000000