accounting-Effective December 31, 2003, Zintel Corporation proposes

Exercise 2-9 Purchase

Effective December 31, 2003, Zintel Corporation proposes to
issue additional shares of its common stock in exchange for all the assets and
liabilities of Smith Corporation and Platz Corporation, after which Smith and
Platz will distribute the Zintel stock to their stockholders in complete
liquidation and dissolution. Balance sheets of each of the corporations
immediately prior to merger on December 31, 2003, follow. The common stock
exchange ratio was negotiated to be 1:1 for both Smith and Platz.

Zintel

Smith

Platz

Current assets

$1,600,000

$ 350,000

$ 12,000

Long-term assets (net)

5,700,000

1,890,000

98,000

Total

$7,300,000

$2,240,000

$110,000

Current liabilities

$ 700,000

$ 110,000

$ 9,000

Long-term debt

1,100,000

430,000

61,000

Common stock, $5 par value

2,500,000

700,000

20,000

Retained earnings

3,000,000

1,000,000

20,000

Total

$7,300,000

$2,240,000

$110,000

Required:

Prepare journal entries on Zintel’s books to record the
combination. Assume the following:

The identifiable assets and liabilities of Smith and Platz
are all reflected in the balance sheets (above), and their recorded amounts are
equal to their current fair values except for long-term assets. The fair value of Smith’s long-term assets
exceed their book value by $20,000 and the fair value of Platz’s long-term
assets exceed their book values by $5,000. Zintel’s common stock is traded
actively and has a current market price of $15 per share. Prepare journal
entries on Zintel’s books to record the combination.
(AICPA adapted)

Problem
2-1 Consolidation

Condensed balance sheets for Phillips Company and Solina
Company on January 1, 2003, are as follows:

Phillips

Solina

Current assets

$180,000

$
85,000

Plant and equipment (net)

450,000

140,000

Total assets

$ 630,000

$ 225,000

Total liabilities

$
95,000

$
35,000

Common stock, $10 par value

350,000

160,000

Other contributed capital

125,000

53,000

Retained earnings (deficit)

60,000

(23,000)

Total equities

$ 630,000

$ 225,000

On January 1, 2003, the stockholders of
Phillips and Solina agreed to a consolidation whereby a new corporation,
McGregor Company, would be formed to consolidate Phillips and Solina. McGregor
Company issued 30,000 shares of its $20 par value common stock for the net
assets of Phillips and Solina.
On the date of consolidation, the fair
values of Phillip’s and Solina’s current assets and liabilities were equal to
their book values. The fair value of plant and equipment for each company was:
Phillips, $530,000; Solina, $150,000.
The investment banking house of Bradly
and Bradly estimated that the fair value of McGregor Company’s common stock was
$35 per share. Phillips will incur $20,000 of direct acquisition costs and
$6,000 in stock issue costs.

Required:

Prepare the journal entries to record the consolidation on
the books of McGregor Company assuming that:

Problem
2-3 Purchase of Net Assets Using Bonds

On January 1, 2004, Perez Company acquired all the assets
and assumed all the liabilities of Stalton Company and merged Stalton into
Perez. In exchange for the net assets of Stalton, Perez gave its bonds payable
with a maturity value of $600,000, a stated interest rate of 10%, interest
payable semiannually on June 30 and December 31, a maturity date of January 1,
2011, and a yield rate of 12%.
Balance sheets for Perez and Stalton
(as well as fair value data) on January 1, 2004, were as follows:

Perez

Stalton

Book
Value

Book
Value

Fair
Value

Cash

$ 250,000

$114,000

$114,000

Receivables

352,700

150,000

135,000

Inventories

848,300

232,000

310,000

Land

700,000

100,000

315,000

Buildings

950,000

410,000

54,900

Accumulated depreciation –
buildings

(325,000)

(170,500)

Equipment

262,750

136,450

123,700

Accumulated depreciation –
equipment

(70,050)

(90,450)

(84,250)

Total
assets

$ 2,968,700

$ 881,500

$ 968,350

Current liabilities

$ 292,700

$95,300

$95,300

Bonds payable, 8% due
1/1/2013, Interest
payable 6/30 and 12/31

300,000

260,000

Common stock, $15 par value

1,200,000

Common stock, $5 par value

236,500

Other contributed capital

950,000

170,000

Retained earnings

526,000

79,700

Total
equities

$ 2,968,700

$ 881,500

Required:

Prepare the journal entry on the books of Perez Company to
record the acquisition of Stalton Company’s assets and liabilities in exchange
for the bonds.

 

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