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On 1/1/20x0, Prospector, Inc. acquired 100% of the outstanding common stock of Sinclair, Inc. for $650,000 cash and 22,000 common shares of their $1 par

On 1/1/20x0, Prospector, Inc. acquired 100% of the outstanding common stock of Sinclair, Inc. for $650,000 cash and 22,000 common shares of their $1 par value common stock. On 1/1/20x1, their common stock traded on public markets for $4.00 per share. Following is Sinclair’s pre-acquisition Balance Sheet at 1/1/20x1:

Sinclair Company

Balance Sheet

1/1/20x0

Assets

Liabilities and Equity

Cash and short-term investments

$70,000

Accounts payable

$60,000

Accounts receivable

50,000

Noncurrent liabilities

180,000

Supplies

20,000

Common stock

300,000

Total Current Assets

140,000

Additional paid-in capital

60,000

Equipment, net

240,000

Retained earnings, 1/1/20x0

120,000

Buildings, net

140,000

Land

90,000

Intangible assets

110,000

Total Assets

$720,000

Total Liabilities and Equity

$720,000

In addition, Sinclair’s assets and liabilities were understated as follows:

Fair value adjustment

Remaining Useful life

Equipment

($16,000)

8 years

Buildings

$100,000

20 years

Land

$74,000

-

Intangible assets

$100,000

10 years

Sinclair, Inc.’s net income and dividends declared and paid were:

Fye 20x0

Fye 20x1

Net income

$96,000

$132,000

Dividends declared and paid

$12,000

$36,000

For fiscal years 20x0 and 20x1, Sinclair did not issue additional common stock or other equity.

Required

  1. Record Prospector Inc.’s acquisition of Sinclair Corporation on 1/1/20x0.
  2. Prepare a schedule showing the allocation of the purchase price to the fair value of the net assets acquired, including periodic depreciation/amortizations of the related purchase price adjustments.
  3. Prepare a schedule showing the computation of goodwill recorded at acquisition, if any.
  4. Prepare Prospector’s journal entries for 20x0 and 20x1 related to their acquisition of Sinclair Company.
  5. Prepare the consolidating worksheet journal entries for fiscal year-ending 20x0.
  6. Prepare the consolidating worksheet journal entries for fiscal year-ending 20x1.

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