Question
Bargain Purchase Omega Corp's net assets have fair values as described below: Fair Value Current assets $500,000 Land $1,000,000 Buildings and equipment $1,300,000 Loans
Bargain Purchase Omega Corp's net assets have fair values as described below:
Fair Value | |
Current assets | $500,000 |
Land | $1,000,000 |
Buildings and equipment | $1,300,000 |
Loans payable | $(450,000) |
Sigma Corporation pays $4,000,000 for Omega Corp and records the acquisition as a merger. Sigma Corporation determines that identifiable intangibles valued at $1,800,000, not previously reported on Omega’s books, are also recognized as acquired assets.
Required: a. Prepare a schedule to calculate the gain on acquisition. b. Prepare Sigma’s journal entry to record the merger. c. Now assume Sigma determines that Omega Corp has unreported contingent liabilities, reportable at the date of acquisition following GAAP, with a fair value of $85,000. Recalculate the gain on acquisition.
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