Question

On January 1, 2012, Pruitt Company issued 30,000 shares of its $2 par value common stock for the net assets of Shah Company in a statutory merger accounted for as a purchase. Pruitt’s common stock had a fair value of $28 per share at that time. A schedule of the Shah Company assets acquired and liabilities assumed at book values (which are equal to their tax bases) and fair values follows:


Additional Information:
1. Pruitt’s income tax rate is 35%.
2. Shah’s beginning inventory was all sold during 2012.
3. Useful lives for depreciation and amortization purposes are:
Plant assets...... 10 years
Patents ...... 8 years
Bond premium.... 10 years
4. Pruitt uses the straight-line method for all depreciation and amortization purposes.

Required:
A. Prepare the entry on Pruitt Company’s books to record the acquisition of the assets and assumption of the liabilities of Shah Company.
B. Assuming Pruitt Company had taxable income of $468,000 in 2012, prepare the income tax entry for2012.


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  • CreatedMarch 13, 2015
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