Bargain purchase. Nectar Corporation has agreed to purchase the net assets of Pyramid Corporation. Just prior to the purchase, Pyramid’s balance sheet was as follows:
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Pyramid Corporation |
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Assets |
Liabilities and Equity |
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Accounts receivable |
$200,000 |
Current liabilities |
$80,000 |
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Inventory |
270,000 |
Mortgage payable |
250,000 |
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Equipment (net) |
100,000 |
Stockholders’ equity: |
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Common stock ($10 par) |
$100,000 |
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Retained earnings |
140,000 |
240,000 |
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Total assets |
$570,000 |
Total liabilities and equity |
$570,000 |
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Fair values agree with book values except for the equipment, which has an estimated fair value of $40,000. Also, it has been determined that brand name copyrights have an estimated value of $15,000. Nectar Corporation paid $10,000 in direct acquisition costs and $15,000 in indirect acquisition costs to consummate the transaction.
Record the purchase on the books of Nectar Corporation assuming the cash paid to Pyramid Corporation was $180,000. Suggestion: Use zone analysis to guide your calculations and entries.