Shelby Company Balance Sheet January 1, 2015 Assets Liabilities and Equity Accounts receivable $100,000 Current liabilities . $ 80,000 Bonds payable Stockholders' equity: Common stock ($1 par). Retained earnings Inventory . 210,000 200,000 $280,000 Equipment (net) Land. . 100,000 $ 10,000 620,000 200,000 Building (net) . 300,000 630,000 $910,000 Total assets. $910,000 Total liabilities and equity
Pederson Company acquires the net assets of Shelby Company by issuing 100,000 of its $1 par value shares of common stock. The shares have a fair value of $20 each. Just prior to the acquisition, Shelby’s balance sheet is attached:
Fair values agree with book values except for the building, which is appraised at $450,000.
The following additional information is available:
^ The equipment will be sold for an estimated price of $200,000. A 10% commission will be paid to a broker.
^ A major R&D project is underway. The accumulated costs are $56,000, and the estimated value of the work is $90,000.
^ A warranty attaches to products sold in the past. The estimated future repair costs under the warranty are $40,000.
^ Shelby has a customer list that has value. It is estimated that the list will provide additional income of $100,000 for three years. An intangible asset such as this is valued at a 20% rate of return.
Record the acquisition of Shelby Company on the books of Pederson Company. Provide calculations where needed.
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