Jack Company is a corporation that was organized on July 1, 2015. The June 30, 2020, balance sheet for Jack is as follows:AssetsInvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . $ 400,500Accounts receivable . . . . . . . . . . . . . . . . .$1,250,000Allowance for doubtful account. . . . . . . (300,000) 950,000Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 18,000Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000Machinery and equipment (net) . . . . . . . . . . . . . . . .. . . . . . . 1,473,500Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$4,500,000Liabilities and EquityCurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,475,000Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . . 1,200,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,825,000Total liabilities and equity . . . . . . . . . . . . . . . . . . . $4,500,000The experience of other companies over the last several years indicates that the machinery and equipment can be sold at 130% of its book value. An analysis of the accounts receivable indicates that the realizable value is $925,000. An independent appraisal made in June 2020 values the land at $70,000. Using the lower-of-costor- market rule, inventory is to be restated at $1,200,000.Calway Corporation plans to exchange 18,000 of its shares for the 120,000 Jack shares. During June 2020, the fair value of a share of Calway Corporation is $270. Acquisition costs are $12,000.The stockholders’ equity account balances of Calway Corporation as of June 30, 2015, are as follows:Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,496,400Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,076,400Record the acquisition of Jack Company by Calway on July 1, 2020. Use value analysis to support the acquisition entries.
Jack Company is a corporation that was organized on July 1, 2015. The June 30, 2020,
Assets
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . $ 400,500
Allowance for doubtful account. . . . . . . (300,000) 950,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 18,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000
Machinery and equipment (net) . . . . . . . . . . . . . . . .. . . . . . . 1,473,500
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$4,500,000
Liabilities and Equity
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,475,000
Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . . 1,200,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,825,000
Total liabilities and equity . . . . . . . . . . . . . . . . . . . $4,500,000
The experience of other companies over the last several years indicates that the machinery and equipment can be sold at 130% of its book value.
An analysis of the accounts receivable indicates that the realizable value is $925,000. An independent appraisal made in June 2020 values the land at $70,000. Using the lower-of-costor- market rule, inventory is to be restated at $1,200,000.
Calway Corporation plans to exchange 18,000 of its shares for the 120,000 Jack shares. During June 2020, the fair value of a share of Calway Corporation is $270. Acquisition costs are $12,000.
The
Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,496,400
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,076,400
Record the acquisition of Jack Company by Calway on July 1, 2020. Use value analysis to support the acquisition entries.
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