Epsilon acquired 100% of Zeta on January 1, 2021, by issuing 15,000 shares of its $10 par
Question:
Epsilon acquired 100% of Zeta on January 1, 2021, by issuing 15,000 shares of its $10 par value common stock with a fair value of $45 per share, issuing $200,000 in debt and paying $200,000 in cash. On January 1, 2021, the book value of Zeta’s Accounts Receivable differs from the fair value by $5,000 (undervalued). Also, Zeta's land was undervalued by $140,000, its buildings were overvalued by $15,000, and equipment was undervalued by $125,000. The useful life of the land is indefinite. The turnover of short-term assets and liabilities is less than one year. The buildings have a 15-year life and the equipment has a 10-year life. $50,000 of the ECOBV was attributed to an unrecorded trademark with a 16-year remaining life. Additionally, during the due-diligence process, Epsilon found out that Zeta has unrecorded liabilities for product warranties for $10,000 that will be likely exercised over 4 years starting January 1, 2021. Epsilon uses the equity method to account for the investment account. Following are selected accounts for Epsilon and Zeta Company as of December 31, 2021. Several accounts have been omitted.