intermediate accounting questions 31095

roblem 1-5 (LO 4, 7) Revaluation of assets. Jansen Company is a corporation that was
organized on July 1, 20X1. The June 30, 20X6 balance sheet for Jansen is as follows:
Assets
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400,500
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,250,000
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . (300,000) 950,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000
Machinery and equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . 1,473,500
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,500,000
Liabilities and Equity
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,475,000
Common stock, $10 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,825,000
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,500,000
(continued)
Business Combinations 59
Machinery was purchased in fiscal years 20X2, 20X4, and 20X5 for $500,000, $850,000, and
$660,000, respectively. The straight-line method of depreciation and a 10-year estimated life with
no salvage value have been used for all machinery, with a half-year of depreciation taken in the
year of acquisition. The experience of other companies over the last several years indicates that the
machinery can be sold at 125% of its book value.
An analysis of the accounts receivable indicates that the allowance for doubtful accounts should
be increased to $337,500. An independent appraisal made in June 20X1 valued the land at $70,000.
Using the lower-of-cost-or-market rule, inventory is to be restated at $1,200,000.
To be exchanged are 16,000 shares of Clark Corporation for 120,000 Jansen shares. During
June 20X6, the fair value of a share of Clark Corporation was $265. The stockholders’ equity account
balances of Clark Corporation as of June 30, 20X6, were as follows:
Common stock, $10 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,496,400
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,076,400
Direct acquisition costs are $12,000.
Assuming the books of Clark Corporation are to be retained, prepare the necessary journal entry
(or entries) to effect the business combination on July 1, 20X6, as a purchase. Use zone analysis
to support the purchase entries.



Problem 1-6 (LO 7) Cash purchase, several of each priority, with goodwill. Tweedy
Corporation is contemplating the purchase of the net assets of Sylvester Corporation in anticipation
of expanding its operations. The balance sheet of Sylvester Corporation on December 31,
20X1, is as follows:
1-60 Part 1 COMBINED CORPORATE ENTITIES AND CONSOLIDATIONS
Required _ _ _ _ _
Sylvester Corporation
Balance Sheet
December 31, 20X1
Current assets: Current liabilities:
Notes receivable . . . . . . . . . . . . $ 24,000 Accounts payable . . . . . . . . . . . $ 45,000
Accounts receivable . . . . . . . . . . 56,000 Payroll and benefit-related
Inventory . . . . . . . . . . . . . . . . . 31,000 liabilities . . . . . . . . . . . . . . . 12,500
Other current assets . . . . . . . . . . 18,000 Debt maturing in one year . . . . . 10,000
Total current assets . . . . . . . . . $129,000 Total current liabilities . . . . . . . $ 67,500
Investments . . . . . . . . . . . . . . . 65,000
Fixed assets: Other liabilities:
Land . . . . . . . . . . . . . . . . . . . $ 32,000 Long-term debt . . . . . . . . . . . . . $248,000
Building . . . . . . . . . . . . . . . . . 245,000 Payroll and benefit-related
Equipment . . . . . . . . . . . . . . . . 387,000 liabilities . . . . . . . . . . . . . . . 156,000
Total fixed assets . . . . . . . . . . 664,000 Total other liabilities . . . . . . . . 404,000
Intangibles: Stockholders’ equity:
Goodwill . . . . . . . . . . . . . . . . . $ 45,000 Common stock . . . . . . . . . . . . . $100,000
Patents . . . . . . . . . . . . . . . . . . 23,000 Paid-in capital in excess of par . . 250,000
Trade names . . . . . . . . . . . . . . 10,000 Retained earnings . . . . . . . . . . . 114,500
Total intangibles . . . . . . . . . . . 78,000 Total equity . . . . . . . . . . . . . 464,500
Total assets . . . . . . . . . . . . . . . $936,000 Total liabilities and equity . . . . . . $936,000
60 Business Combinations
An appraiser for Tweedy determined the fair values of the assets and liabilities to be as follows:
Assets Liabilities
Notes receivable . . . . . . . . . . . . $ 24,000 Accounts payable . . . . . . . . . . . $ 45,000
Accounts receivable . . . . . . . . . . 56,000 Payroll and benefit-related
Inventory . . . . . . . . . . . . . . . . . 30,000 liabilities . . . . . . . . . . . . . . . . 12,500
Other current assets . . . . . . . . . . 15,000 Debt maturing in one year . . . . . . 10,000
Investments . . . . . . . . . . . . . . . 63,000
Land . . . . . . . . . . . . . . . . . . . 55,000 Long-term debt . . . . . . . . . . . . . . 248,000
Building . . . . . . . . . . . . . . . . . 275,000 Payroll and benefit-related
Equipment . . . . . . . . . . . . . . . . 426,000 liabilities—long-term . . . . . . . . . 156,000
Goodwill . . . . . . . . . . . . . . . . . —
Patents . . . . . . . . . . . . . . . . . . 20,000
Trade names . . . . . . . . . . . . . . 15,000
The agreed-upon purchase price was $580,000 in cash. Direct acquisition costs paid in cash totaled
$20,000.
Using the above information, do zone analysis, and prepare the entry on the books of Tweedy
Corporation to purchase the net assets of Sylvester Corporation on December 31, 20X1.