Purchase of two companies with goodwill. Barker Corporation has been looking to expand its operations and has decided to acquire the assets of Verk Company and Kent Company. Barker will issue 30,000 shares of its $10 par common stock to acquire the net assets of Verk Company and will issue 15,000 shares to acquire the net assets of Kent Company.
Verk and Kent have the following balance sheets as of December 31, 20X1:
|
Assets |
Verk |
Kent |
|
Accounts receivable |
$200,000 |
$80,000 |
|
Inventory |
150,000 |
85,000 |
|
Property, plant, and equipment: |
||
|
Land |
150,000 |
50,000 |
|
Building |
500,000 |
300,000 |
|
Accumulated depreciation |
150,000 |
110,000 |
|
Total assets |
$850,000 |
$405,000 |
|
Verk |
Kent |
|
|
Liabilities and Equity |
$160,000 |
$55,000 |
|
Current liabilities |
100,000 |
100,000 |
|
Bonds payable |
||
|
Stockholders’ equity: |
||
|
Common stock ($10 par) |
300,000 |
100,000 |
|
Retained earnings |
290,000 |
150,000 |
|
Total liabilities and equity |
$850,000 |
$405,000 |
The following fair values are agreed upon by the two firms:
|
Assets |
Verk |
Kent |
|
Inventory |
$200,000 |
$100,000 |
|
Bonds payable |
90,000 |
95,000 |
|
Land |
300,000 |
80,000 |
|
Buildings |
450,000 |
400,000 |
Barker’s stock is currently trading at $40 per share. Barker will incur $5,000 of direct acquisition costs in Verk and $4,000 of direct acquisition costs in Kent. Barker also incurred $13,000 of indirect acquisition costs and $15,000 of registration and issuance costs. Barker stockholders’ equity is as follows:
|
Common stock, $10 par |
$1,200,000 |
|
Paid in capital in excess of par |
800,000 |
|
Retained earnings |
750,000 |
Required
Record the acquisition on the books of Barker Corporation, using purchase accounting principles. Zone analysis is suggested to guide your work.