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Question;11.;The Blue Reef Company purchased the net assets of;the Pink Coral Company on January 1, 20X1, and made the following entry to;record the purchase;Current;Assets.............................;100,000;Equipment..................................;150,000;Land......................................;50,000;Buildings..................................;300,000;Goodwill..................................;100,000;Liabilities..............................;80,000;Common Stock, $1 Par.....................;100,000;Paid-in;Capital in Excess of Par.........;520,000;Required;Make the;required entry on January 1, 20X3, for each of the two following independent;contingency agreements;a.;An additional cash payment would be made on January;1, 20X3 equal to four times the amount by which average annual earnings of the;Pink Coral Division exceed $80,000 per year 20X1 and 20X2. Net income was;$112,000 in 20X1 and $140,000 in 20X2.;b.;Additional shares would be issued on January 1, 20X3;to compensate for any fall in the value of Blue Reef common stock below $16 per;share. The settlement would be to cure the deficiency by issuing added shares;based on their fair value on January 1, 20X3. The fair price of the shares on;January 1, 20X3 was $10.;1-22;Chapter 1;12. The balance;sheet information for Nickel Company is to be used in both parts (a) and (b);each of which is an independent case. On January 1, 20X1, a business;combination occurred between Dime Co. and Nickel Co. On this date, a condensed;balance sheet for Nickel showed:..........................;Current Assets;Book;Value;$;500,000;Plant and Equipment;(net)...............;900,000;Intangibles - Patent....................;150,000;$1,550,000;==========;Current Liabilities.....................;$;75,000;Long-Term;Debt..........................;225,000;Common;Stock............................;400,000;Paid-in Capital in Excess of;Par........;300,000;Retained Earning........................;550,000;$1,550,000;==========;Required;a.;Assume the combination was an asset acquisition in;which Dime purchased all of the net assets of Nickel for $1,725,000 cash.;Nickel's current assets were undervalued $70,000, plant and equipment were;undervalued $150,000, the patent was undervalued $80,000, and long-term debt;was overvalued $45,000.;Record the entry or entries on Dime's books to carry out the;acquisition of the net assets of Nickel.;b.;Assume that, in the combination, Dime acquired;Nickel's net assets by issuance of new Dime common stock with a par value of;$200,000 and a fair value of $1,750,000. In addition, Dime incurred stock;issuance costs of $30,000. For financial accounting purposes, the combination;is to be accounted for as a purchase. For tax purposes, the combination is;tax-free to the shareholders of Nickel Company. Assume a tax rate of 32%.;Current assets of Nickel are undervalued by $70,000. The fair value of Nickel's;plant and equipment was $1,050,000. The intangible is a patent with a fair;value equal to book value.;Record the entry or entries on Dime's books to carry out the;acquisition of the net assets of Nickel. Provide supporting calculations.;1-23

 

Paper#44347 | Written in 18-Jul-2015

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