Chapter 1 Business Combination: New Rules for a Long-Standing Business Practice

Exercise 1

Asset versus stock acquisition. Barstow Company is contemplating the acquisition of the net assets of Crown Company for $875,000 cash. To complete the transaction, acquisition costs are $15,000. The balance sheet of Crown Company on the purchase date is as follow:

Crown Co. Balance Sheet 12/31/2015

Current assets 80,000 Liabilities 100,000

land 70,000 common stock ($10 par) 100,000

Building 450,000 paid in capital in excess of par 150,000

Accum. dep-building (200,000) retained earnings 250,000

Equipment 300,000

Accum. dep-building (100,000)

total assets 600,000 total liab and equitiy 600,000

Crown's identifiable assest & liabilities

current assets 85,000

land 90,000

building 300,000

equipment 275,000

liabilities 102,000

1. Record the acquisition of the net assest of Crown Co on Barstow Co.'s books.

2. Record the sale of the new assets on the books fo Crown Co.

3. Record the acquisition of 100% of the common stock of Crown Co. on Barstow's books. Crown Co. will remain a separate legal entitiy.