Question Three: (16 marks) (B1, C2)

On December 31, 2020, Post company issued 20,000 shares of its $18 par common stock (current fair value $30 a share) to stockholders of Sage company for 18,000 shares of the outstanding $10 par common stock of Sage. Out of pocket costs of the business combination paid by Post on December 31, 2020, associated with SEC Registration $20,000.

Balance sheet of Post Corporation and Sage Company for the year ended December 31, 2020, prior to consummation of the business combination, follows:

On December 31, 2020, the current fair values of Sage companys identifiable assets and liabilities were the same as their carrying amounts, except for the Inventories, Plant Assets (net) and Patent (net). They were as $90,000, $365,000, $30,000, respectively.

Instructions:

1. Prepare journal entries for Post Corporation on December 31, 2020, to record the business combination with Sage Company. (6 marks).

2. Prepare a working paper for consolidated balance sheet and related working paper elimination (in journal entry format) for Post Corporation and subsidiary on December 31, 2020. (10 marks).

Separate Financial Statements prior to business combination) For Year Ended December 31, 2020 Sage Comp Cash Inventories Other Current Assets Plant Assets (Net) Patent (Net) Total Assets Post Corp. Balance Sheets Assets 125.000 150,000 110,000 450,000 40,000 110,000 70.000 300.000 20,000 540,000 835,000 35,000 115,000 Liabilities and Stockholders' Equity Income Taxes Payable 26,000 Other Liabilities 325,000 Common Stock 300,000 Common Stock . $10 par Additional Paid-in Capital 50,000 Retained Earnings 134,000 Total Liabilities & Stockholders' Equity 835,000 200.000 58,000 132,000 540,000