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 account 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 anticipation of expanding its operations. The balance sheet of Sylvester Corporation on December 31, 20X1, is as follows: 1-60 Part 1 COMBINED CORPORATE ENTITIES AND CONSOLIDATIONS 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 totaled $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