2. On January 1, 2019, AB Company exchanges 10,000 shares of its common stock for all of the net assets of CD, Inc. Each of the NT's shares has a $5 par value and a $40 fair value. AB also paid $35,000 as direct out- of-pocket costs. Several of CD’s accounts have fair values that differ from their book values on this date: Book Values Fair Values $ 85,000 65,000 100,000 $ 83,000 125,000 180,000 160,000 45,000 Receivables Trademarks Furniture and Fixture Research and development Notes payable -0- 40,000 Precombination January 1, 2019, book values for the two companies are as follows: AB CD Cash $ 50,000 120,000 300,000 640,000 320,000 $ 1,430,000 9,000 85,000 65,000 100,000 105,000 $ 364,000 Receivables Trademarks Furniture and Fixture Equpiment (net) Totals Accounts Payable Notes Payable 100,000 270,000 34,000 60,000 50,000 30,000 190,000 $ 364,000 Common stock 400,000 30,000 Additional paid-in capital Retained earnings 630,000 $ 1,430,000 Totals Assume that this combination is a statutory merger so that CD’s accounts will be transferred to the records of AB. CD will be dissolved and will no longer exist as a legal entity. Using the acquisition method, prepare the journal entry to record the purchase and a postcombination balance sheet for AB as of the acquisition date.
2. On January 1, 2019, AB Company exchanges 10,000 shares of its common stock for all of the net assets of CD, Inc. Each of the NT's shares has a $5 par value and a $40 fair value. AB also paid $35,000 as direct out- of-pocket costs. Several of CD’s accounts have fair values that differ from their book values on this date: Book Values Fair Values $ 85,000 65,000 100,000 $ 83,000 125,000 180,000 160,000 45,000 Receivables Trademarks Furniture and Fixture Research and development Notes payable -0- 40,000 Precombination January 1, 2019, book values for the two companies are as follows: AB CD Cash $ 50,000 120,000 300,000 640,000 320,000 $ 1,430,000 9,000 85,000 65,000 100,000 105,000 $ 364,000 Receivables Trademarks Furniture and Fixture Equpiment (net) Totals Accounts Payable Notes Payable 100,000 270,000 34,000 60,000 50,000 30,000 190,000 $ 364,000 Common stock 400,000 30,000 Additional paid-in capital Retained earnings 630,000 $ 1,430,000 Totals Assume that this combination is a statutory merger so that CD’s accounts will be transferred to the records of AB. CD will be dissolved and will no longer exist as a legal entity. Using the acquisition method, prepare the journal entry to record the purchase and a postcombination balance sheet for AB as of the acquisition date.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:2. On January 1, 2019, AB Company exchanges 10,000 shares of its common stock for all of the net assets of
CD, Inc. Each of the NT's shares has a $5 par value and a $40 fair value. AB also paid $35,000 as direct out-
of-pocket costs. Several of CD’s accounts have fair values that differ from their book values on this date:
Book Values
Fair Values
$ 85,000
65,000
100,000
$ 83,000
125,000
180,000
160,000
45,000
Receivables
Trademarks
Furniture and Fixture
Research and development
Notes payable
-0-
40,000
Precombination January 1, 2019, book values for the two companies are as follows:
AB
CD
9,000
85,000
65,000
100,000
105,000
$ 364,000
Cash
$
50,000
120,000
300,000
640,000
$
Receivables
Trademarks
Furniture and Fixture
Equpiment (net)
320,000
Totals
$ 1,430,000
Accounts Payable
Notes Payable
Common stock
Additional paid-in capital
Retained earnings
2$
100,000
$
34,000
60,000
50,000
30,000
190,000
$ 364,000
270,000
400,000
30,000
630,000
$ 1,430,000
Totals
Assume that this combination is a statutory merger so that CD’s accounts will be transferred to the records of AB.
CD will be dissolved and will no longer exist as a legal entity. Using the acquisition method, prepare the journal entry
to record the purchase and a postcombination balance sheet for AB as of the acquisition date.
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