Working backward from purchase data. (Adapted from a problem by S. A. Zeff.) On May 1, 2008, Homer acquired the assets and agreed to take on and pay off the liabilities of Tonga in exchange for 10,000 of Homers common shares. Homer accounted for the acquisition of the net assets of Tonga using the purchase method. On the date of acquisition, Tonga€™s carrying value of depreciable assets exceeded Homer€™s estimate of their fair value, but Homer judged all other items on Tonga€™s books to reflect fair value on that date so that the purchase price exceeded the fair value of the identifiable assets, generating goodwill. On the date of the acquisition, Tonga€™s shareholders€™ equity was $980,000, and its liabilities totaled $80,000. Tonga reported no goodwill on its balance sheet.
Homer made the following journal entry to record the acquisition:

a. What was the carrying value on Tonga€™s books of its total assets just before the acquisition?
b. What was the carrying value of depreciable assets of Tonga just before theacquisition?

Transcribed Image Text:

Current Assets 210,000 Depreciable Assets (net) 700,000 Goodwill .. 120,000 Liabilities 80,000 Common Stock-Par. Additional Paid-In Capital . 150,000 800,000 Shareholders Equity Assets Liabilities (Class.) ContriCap ContriCap +150,000 +800,000 +210,000 +80,000 +700,000 +120,000