CHAPTER 2

Use the following information to answer questions #1-5. All amounts are in thousands. PR Company pays $10,000 in cash and issues no par stock with a fair value of $40,000, to acquire all of SX Corporation's net assets. SX's balance sheet at the date of the acquisition is as follows:

SX Corporation

Book Value Fair Value

Current Assets $2,000 $4,200

Property, Plant and Equipment $10,000 $6,000

Identifiable Intangible Assets $4,000 $14,000

Total Assets: $16,000

Current Liabilities $1,600 $2,000

Long-Term Debt $12,000 $11,600

Capital Stock $5,000

Retained Earnings $8,000

Accumulated Other Comprehensive Income ($1,000)

Treasury Stock ($9,600)

Total Liabilities and Equity: $16,000

PR's consultants find these items that are not reported on SX's balance sheet

Fair Value

Potential contracts with new customers $8,000

Advanced production technology $4,000

Future cost savings 2,000

Customer list $1,000

Outside consultants are paid $200 in cash, and registration fees to issue PR's new stock are $400. All questions below relate to the entry or entries PR makes to record the acquisition on its books.

1. PR recognizes previously unrecorded intangibles of:
2. $1,000 b. $5,000 c. $13,000 d. $15,000

1. PR credits Capital Stock in the amount of?
2. $40,000 b. $50,000 c. $39,600 d. $39,200

1. PR records expenses of:
2. $0 b. $200 c. $400 d. $600

1. Three months after the acquisition, a fire damages SX's equipment, reducing its fair value from $6,000 to $4,000. How does PR report this event? Ignore depreciation.
2. Loss of $2,000, reported on the income statement
3. $2,000 increase in goodwill
4. $2,000 decrease in goodwill
5. Not reported
6. Three months after the acquisition, PR receives information revealing that the identifiable intangible assets reported on SX's books at the date of acquisition were really worth $12,000 instead of $14,000. How does PR report this information? Ignore depreciation.
7. Loss of $2,000, reported on the income statement
8. $2,000 decrease in goodwill
9. $2,000 increase in goodwill
10. Not reported