1-5 (LO 4, 7) Revaluation of assets. Jansen Company is a corporation that was organized on July 1, 20X1. The June 30, 20X6 balance sheet for Jansen 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 (continued) Business Combinations 59 Machinery was purchased in fiscal years 20X2, 20X4, and 20X5 for $500,000, $850,000, and $660,000, respectively. The straight-line method of depreciation and a 10-year estimated life with no salvage value have been used for all machinery, with a half-year of depreciation taken in the year of acquisition. The experience of other companies over the last several years indicates that the machinery can be sold at 125% of its book value. An analysis of the accounts receivable indicates that the allowance for doubtful accounts should be increased to $337,500. An independent appraisal made in June 20X1 valued the land at $70,000. Using the lower-of-cost-or-market rule, inventory is to be restated at $1,200,000. To be exchanged are 16,000 shares of Clark Corporation for 120,000 Jansen shares. During June 20X6, the fair value of a share of Clark Corporation was $265. The stockholders equity ac- count balances of Clark Corporation as of June 30, 20X6, were as follows: Common stock, $10 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,496,400 Total stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,076,400 Direct acquisition costs are $12,000. Assuming the books of Clark Corporation are to be retained, prepare the necessary journal entry (or entries) to effect the business combination on July 1, 20X6, as a purchase. Use zone analysis to support the purchase entries. Problem 1-6 (LO 7) Cash purchase, several of each priority, with goodwill. Tweedy Corporation is contemplating the purchase of the net assets of Sylvester Corporation in anticipa- tion of expanding its operations. The balance sheet of Sylvester Corporation on December 31, 20X1, is as follows: 1-60 Part 1 C OMBINED C ORPORATE E NTITIES AND C ONSOLIDATIONS Required Sylvester Corporation Balance Sheet December 31, 20X1 Current assets: Current liabilities: Notes receivable . . . . . . . . . . . . $ 24,000 Accounts payable . . . . . . . . . . . $ 45,000 Accounts receivable . . . . . . . . . . 56,000 Payroll and benefit-related Inventory . . . . . . . . . . . . . . . . . 31,000 liabilities . . . . . . . . . . . . . . . 12,500 Other current assets . . . . . . . . . . 18,000 Debt maturing in one year . . . . . 10,000 Total current assets . . . . . . . . . $129,000 Total current liabilities . . . . . . . $ 67,500 Investments . . . . . . . . . . . . . . . 65,000 Fixed assets: Other liabilities: Land . . . . . . . . . . . . . . . . . . . $ 32,000 Long-term debt . . . . . . . . . . . . . $248,000 Building . . . . . . . . . . . . . . . . . 245,000 Payroll and benefit-related Equipment . . . . . . . . . . . . . . . . 387,000 liabilities . . . . . . . . . . . . . . . 156,000 Total fixed assets . . . . . . . . . . 664,000 Total other liabilities . . . . . . . . 404,000 Intangibles: Stockholders equity: Goodwill . . . . . . . . . . . . . . . . . $ 45,000 Common stock . . . . . . . . . . . . . $100,000 Patents . . . . . . . . . . . . . . . . . . 23,000 Paid-in capital in excess of par . . 250,000 Trade names . . . . . . . . . . . . . . 10,000 Retained earnings . . . . . . . . . . . 114,500 Total intangibles . . . . . . . . . . . 78,000 Total equity . . . . . . . . . . . . . 464,500 Total assets . . . . . . . . . . . . . . . $936,000 Total liabilities and equity . . . . . . $936,000 60 Business Combinations An appraiser for Tweedy determined the fair values of the assets and liabilities to be as follows: Assets Liabilities Notes receivable . . . . . . . . . . . . $ 24,000 Accounts payable . . . . . . . . . . . $ 45,000 Accounts receivable . . . . . . . . . . 56,000 Payroll and benefit-related Inventory . . . . . . . . . . . . . . . . . 30,000 liabilities . . . . . . . . . . . . . . . . 12,500 Other current assets . . . . . . . . . . 15,000 Debt maturing in one year . . . . . . 10,000 Investments . . . . . . . . . . . . . . . 63,000 Land . . . . . . . . . . . . . . . . . . . 55,000 Long-term debt . . . . . . . . . . . . . . 248,000 Building . . . . . . . . . . . . . . . . . 275,000 Payroll and benefit-related Equipment . . . . . . . . . . . . . . . . 426,000 liabilitieslong-term . . . . . . . . . 156,000 Goodwill . . . . . . . . . . . . . . . . . Patents . . . . . . . . . . . . . . . . . . 20,000 Trade names . . . . . . . . . . . . . . 15,000 The agreed-upon purchase price was $580,000 in cash. Direct acquisition costs paid in cash to- taled $20,000. Using the above information, do zone analysis, and prepare the entry on the books of Tweedy Corporation to purchase the net assets of Sylvester Corporation on December 31, 20X1