Analyzing Cost Perusal Inc. acquired 100% of Scanner Inc.’s outstanding conimon stock for

$1,500,000 cash. Information with respect to Scanner as of the acquisition date is as follows:

Book Value Current Value Cash Accounts

.

receivable, net ... .

Notes receivable .

Inventory Land .

.

Buildings and equipment. . . .

Goodwill Patent .

.

Total Assets .

Payables and accruals .

Long-term debt (10% bonds) .

Total Liabilities .

Common stock .

Additional paid-in capital . . . Retained earnings .

Total Stockholders' Equity .

Total Liabilities and Equity

$ 180,000 55,000 100,000 300,000 500,000 600,000'

45,000 120,000

$1

,900,000

$ 300,000 700,000

$1

,000,000 $ 100,000 500,000 300,000

$ 900,000

$1

,900,000

$ 180,000 55,000 60,000 330,000 600,000 750,000 105,000 See note.

$ 300,000 650,000

= Net of accumulated depreciation of $123,000.

Note: The $120,000 of goodwill arose from Scanner’s acquisition two years ago of the assets of a local competitor.

Required 1. For other than existing goodwill, what procedures and guidelines are used to determine current values of assets acquired and liabilities assumed? (Refer to paragraphs 37 and 38 of FAS 141.)

2. As to the 10% bonds payable, is the current rate of interest more or less than 10%? Will future interest expense be at a rate more or less than 10%?

3. Separate the investment cost into the individual components of the major conceptual elements.

4. Prepare all consolidation entries as of the acquisition date.