Alternate consideration, bargain. Kent Corporation is considering the purchase of Williams Incorporated. Kent has asked you, its accountant, to evaluate the various offers it might make to Williams Incorporated. The December 31, 20X1 balance sheet of Williams is as follows:
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Williams Incorporated |
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Assets |
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Current assets: |
Accounts payable |
$40,000 |
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Accounts receivable |
$50,000 |
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Inventory |
300,000 |
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|
$350,000 |
Stockholders’ equity: |
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Noncurrent assets: |
Common stock |
$40,000 |
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Land |
$20,000 |
Paid in capital in excess of par |
110,000 |
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|
Building (net) |
70,000 |
90,000 |
Retained earnings |
250,000 |
400,000 |
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Total assets |
$440,000 |
Total liabilities and equity |
$440,000 |
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The following fair values differ from existing book values:
|
Inventory |
$250,000 |
|
Land |
40,000 |
|
Building |
120,000 |
Required
Record the purchase entry for Kent Corporation that would result under each of the alternative offers. Price zone analysis is suggested.
1. Kent Corporation issues 20,000 of its $10 par common stock with a fair value of $25 per share for the net assets of Williams Incorporated.
2. Kent Corporation pays $385,000 in cash.