PR Company pays $10,000 in cash and issues stock with a fair value of $40,000 to acquire
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Question:
PR Company pays $10,000 in cash and issues stock with a fair value of $40,000 to acquire all of SX Corporation’s stock. SX will be a subsidiary of PR. Balance sheet accounts just prior to the acquisition are as follows, in trial balance format:
PR Company | SX Corporation | ||
---|---|---|---|
Book value | Book value | Fair value | |
Dr (Cr) | Dr (Cr) | Dr (Cr) | |
Current assets | $14,000 | $ 2,000 | $ 4,200 |
Property, plant & equipment, net | 110,000 | 10,000 | 6,000 |
Identifiable intangible assets | 800 | 4,000 | 14,000 |
Current liabilities | (13,000) | (1,600) | (2,000) |
Long-term debt | (60,000) | (12,000) | (11,600) |
Capital stock | (44,400) | (5,000) | |
Retained earnings | (8,000) | (8,000) | |
Accumulated other comprehensive income | (200) | 1,000 | |
Treasury stock | 800 | 9,600 | |
Total | $ 0 | $ 0 |
PR’s consultants find these items that are not reported on SX’s balance sheet:
Fair value | |
---|---|
Potential contracts with new customers | $ 6,000 |
Advanced production technology | 4,000 |
Future cost savings | 2,000 |
Customer lists | 1,000 |
Outside consultants are paid $200 in cash, and registration fees to issue PR’s new stock are $400. Total acquisition cost reported by PR (the debit to Investment on PR’s books) is
a). $50,000
b). $50,200
c). $50,400
d). $50,600
Related Book For
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng
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