Question
Power Corporation acquired 100 percent of Light Corporation in a nontaxable transaction. The following selected information is available for Light Corporation at the acquisition date:
Power Corporation acquired 100 percent of Light Corporation in a nontaxable transaction. The following selected information is available for Light Corporation at the acquisition date:
| Light Corporation | ||||||||
| Book Values | Fair Values | Tax Basis | ||||||
Accounts receivable, net | | $30,000 | | | $28,000 | | | $30,000 | |
Land | | 10,000 | | | 40,000 | | | 10,000 | |
Equipment | | 20,000 | | | 15,000 | | | 5,000 | |
Bond payable | | 120,000 | | | 115,000 | | | 120,000 | |
|
Light Corporation has never recorded an allowance for doubtful accounts; however, upon review of the accounts receivable detail, Power has determined that approximately $2,000 of the receivables are uncollectible.
Several years ago, Light purchased a small plot of land for an expanded parking area that has never been developed. An outside party has recently offered to purchase the land for $40,000.
Power estimated the value of the equipment acquired with Light to be $15,000.
Light issued $120,000 in bonds (at par) two years ago. Since that time, interest rates have changed, which has been reflected in the fair value of those bonds at the date of acquisition.
The current and future tax rate for Power Light Consolidated is 40%.
Required:
Compute the amounts to be included in the consolidated balance sheet as deferred tax assets and/ or liabilities as a result of the Light acquisition.
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