week 1
knohe_
problem_1-5.docxProblem 1-5 (LO 3, 4) Revaluation of assets.
Jack Company is a corporation that was organized on July 1, 2015. The June 30, 2020, balance sheet for Jack 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
The experience of other companies over the last several years indicates that the machinery and equipment can be sold at 130% of its book value.
An analysis of the accounts receivable indicates that the realizable value is $925,000. An independent appraisal made in June 2020 values the land at $70,000. Using the lower-of-cost-or-market rule, inventory is to be restated at $1,200,000.
Calway Corporation plans to exchange 18,000 of its shares for the 120,000 Jack shares. During June 2020, the fair value of a share of Calway Corporation is $270. Acquisition costs are $12,000.
The stockholders’ equity account balances of Calway Corporation as of June 30, 2015, are as follows:
Common stock ($10 par)
$2,000,000
Paid-in capital in excess of par
580,000
Retained earnings
2,496,400
Total stockholders’ equity
$5,076,400
Required
