Question

CISE 2-1 Asset Purchase LO 6 Book Value Fair Value Cash Receivables (net) Inventory Plant and equipment (net) Land $ 120,000 192,000 360,000 480,000 420,000 $ 120,000 228,000 396,000 540,000 660,000 Total assets $1,572,000 $1,944,000 $ 594,000 Liabilities Common stock ($5 par value) Other contributed capital Retained earnings Total equities $ 540,000 480,000 132,000 420,000 $1,572,000 Required: A. Prepare the journal entries on the books of Preston Company to record the purchase of the assets and assumption of the liabilities of Saville Company if the amount paid was $1,560,000 in cash. B. Repeat the requirement in (A) assuming that the amount paid was $990,000. Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company, Immediately prior to the acquisition, Saville Company's balance sheet was as follows:

please explain

Answer 1

Assets and liabilities of selling company recorded at fair value in the books of pertson company (purchasing company) .

Excess cash paid on this purchase treated as Goodwill

Less than the net assets amount paid by the purchasing company treated as gain is also treated as capital reserve.