2.

EXERCISE 34

Purchase, Date of Acquisition LO 7LO 8LO 9

On January 1, 2018, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows:

	Peach Company	Swartz Company
Cash	$ 73,000	$ 13,000
Accounts receivable (net)	95,000	19,000
Inventory	58,000	25,000
Plant and equipment (net)	95,000	43,000
Land	26,000	22,000
Total assets	$347,000	$122,000
Accounts payable	$ 66,000	$ 18,000
Notes payable	82,000	21,000
Common stock, $20 par value	100,000	40,000
Other contributed capital	60,000	24,000
Retained earnings	39,000	19,000
Total equities	$347,000	$122,000

Any difference between the book value of equity and the value implied by the purchase price relates to goodwill.

Required:

1. Prepare the journal entry on Peach Company's books to record the exchange of stock.
2. Prepare a Computation and Allocation Schedule for the difference between book value and value implied by the purchase price.
3. Prepare a consolidated balance sheet at the date of acquisition.

Answer:

(a)

Dr Cr

Investment in Swartz

Common Stock

Other Contributed Capital

Other Contributed Capital

Cash

(b)

Difference between implied and book value =

Parent NCI (0%) Total

Implied value

Book value

Difference

Goodwill

Balance

(c)

	Peach Company	Swartz Company	Elimination Dr	Elimination Cr	Consolidation
Cash	$ 73,000	$ 13,000
Accounts receivable (net)	95,000	19,000
Inventory	58,000	25,000
Investment
Plant and equipment (net)	95,000	43,000
Goodwill
Land	26,000	22,000
Total assets	$347,000	$122,000
Accounts payable	$ 66,000	$ 18,000
Notes payable	82,000	21,000
Common stock, $20 par value	100,000	40,000
Other contributed capital	60,000	24,000
Retained earnings	39,000	19,000
Total equities	$347,000	$122,000