P2-9 Prepare allocation schedules under different stock price assumptions (bargain purchase)

Pop Corporation exchanged 40,000 previously unissued no par common shares for a 40 percent interest in Son Corporation on January 1, 2016. The assets and liabilities of Son on that date (after the exchange)

were as follows (in thousands):

Book Value Fair Value Cash $ 200 $ 200 Accounts receivable—net 400 400 Inventories 1,000 1,200 Land 200 600 Buildings—net 1,200 800 Equipment—net 800 1,000 Total assets $3,800 $4,200 Liabilities $1,800 $1,800 Capital stock 1,400 Retained earnings 600 Total equities $3,800 The direct cost of issuing the shares of stock was $20,000, and other direct costs of combination were

$80,000.

REQuIRED 1. Assume that the January 1, 2016, market price for Pop’s shares is $24 per share. Prepare a schedule to allocate the investment cost/book value differentials.

2. Assume that the January 1, 2016, market price for Pop’s shares is $16 per share. Prepare a schedule to allocate the investment cost/book value differentials. Assume that other direct costs were $0.