Question

3. Nineteen Company had the following summarized balance sheet on December 31 of the current year:

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Assets	​
Cash	$250,000
Accounts receivable	300,000
Inventory	350,000
Property and plant (net)	500,000
Total	$1,400,000
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Liabilities and Equity	​
Bonds payable	$ 600,000
Common stock, $5 par	300,000
Paid-in capital in excess of par	400,000
Retained earnings	100,000
Total	$1,400,000

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The fair value of the inventory and property and plant is $500,000 and $750,000, respectively. Bonds payable has a fair value of $585,000.

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Assume that Covid Corporation exchanges 80,000 of its $2 par value shares of common stock, when the fair price is $15 per share, for 100% of the common stock of Nineteen Company. Covid incurred acquisition costs of $5,000 and stock issuance costs of $5,000.

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Required:

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a.	What journal entries will Covid Corporation record for the investment in Nineteen and issuance of stock?
b.	Prepare a supporting value analysis and determination and distribution of excess schedule c. Prepare Covid’s elimination and adjustment entry for the acquisition of Nineteen.

Answer 1

a.)	S.No.	Account Titles	Debit $	Credit $
	1	Investment in Nineteen Company	1,200,000
		Common Stock (80,000 x 2 )		160,000
		Paid in capital in excess of par		1,040,000
		(80,000 x 13 )
	2	Paid in capital in excess of par	5,000
		Acquisition Expense	5,000
		Cash		10,000

b.)			Amount $
	Purchase Consideration		1,200,000
	Less: Net assets acquired
	Book value (300,000 + 400,000 + 100,000 )	800,000
	Fair value in excess of book value
	Inventory ( 500,000 - 350,000 )	150,000
	Property & Plant (750,000 - 500,000 )	250,000
	Bonds Payable (600,000 - 585,000 )	15,000	1,215,000
	Goodwill (Bargain Power)		-15,000
C.)	Account Titles	Debit $	Credit $
	Common Stock , $ 5 par (E)	300,000
	Paid in capital in excess of par (E)	400,000
	Retained earnings (E)	100,000
	Investment in Nineteen Company (E)		1,200,000
	Inventory (A)	150,000
	Property & Plant (A)	250,000
	Bonds Payable (A)	15,000
	Bargin Power (A)		15,000