Parrot Incorporated purchased the assets and liabilities of Sparrow Company at t
ID: 2488212 • 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
Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow will dissolve as a separate legal entity.
Explanation / Answer
Cash
Notes payable
640000
2000000
Date account titles debit credit Dec 31,2013 cash 120000 Inventory 250000 Other current asset 600000 Land 320000 Plant asset 4600000 Patent 50000 Account payable 1200000 Notes payable 2100000Cash
Notes payable
640000
2000000