Question

Exercise 3-4 On January 1, 2013, Peach Company issued 1,390 of its $20 par value common shares with a fair value of $58 per share in exchange for the 1,870 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,867, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows: Peach Company Swartz Company Cash $70,580 $13,760 Accounts receivable (net) 95,150 20,050 Inventory 58,210 22,920 Plant and equipment (net) 94,740 40,040 Land 26,430 19,820    Total assets $345,110 $116,590 Accounts payable $67,610 $16,600 Notes payable 77,430 21,390 Common stock, $20 par value 97,200 37,400 Other contributed capital 65,330 22,620 Retained earnings 37,540 18,580    Total equities $345,110 $116,590 Any difference between the book value of equity and the value implied by the purchase price relates to goodwill. *** Any difference between the book value of equity and the value implied by the purchase price relates to goodwill. (a) Your answer is correct. Prepare the journal entries on Peach Company's books to record the exchange of stock. (If no entry is required, select "No En indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit by Study Investment in Swartz Com 80,620 Common Stock 27,800 Other Contributed Capi 52,820 (To record exchange of stock) Other Contributed Capital 1,867 Cash 1,867 (To record registration costs) SHOW LIST OF ACCOUNTS LINK TO TEXT (b) Prepare a Computation and Allocation Schedule for the difference between book value and value implied by the purchase price. pe here to search NEED ANSWER TO B ONLY***

Answer 1

(b) Computation and Allocation Schedule for the difference between the book value and value implied by the purchase price Purchase price and implied value Less: Book value of equity acquired Difference between implied and book value Goodwill Balance Parent Share Non-Controlling Share Entire Value $80,620 $0 $80,620 $78,600 $0 $78,600 $2,020 $0 $2,020 -$2,020 $0 -$2,020 $0 $0 $0 Working Notes: 1 Number of shares of Swartz Company = $37,400/$20 = 1,870 shares On January 1, 2013, Peach company acquired 1,870 i.e. 100% outstanding common shares of Swartz company Non-controlling share = 0% 2 Purchase price of 1,870 outstanding common shares of Swartz company = 1,390 * $58 = $80,620 3 Book value of equity acquired = Common stock + other contributed capital + Retained earnings Book value of equity acquired = $37,400 + $22,620 + $18,580 = $78,600