Tax free exchange, tax loss carryover. Gusty Company issued 10,000 shares of $10 par common stock for the net assets of Marco Incorporated on December 31, 20X2. The stock has a fair value of $60 per share. Direct acquisition costs were $10,000, and the cost of issuing the stock was $3,000. At the time of the purchase, Marco had the following summarized balance sheet:
|
Assets |
Liabilities and Equity |
||
|
Current assets |
$150,000 |
Bonds payable |
$200,000 |
|
Equipment (net) |
200,000 |
Common stock ($10 par) |
100,000 |
|
Land and buildings (net) |
250,000 |
Retained earnings |
300,000 |
|
Total assets |
$600,000 |
Total liabilities and equity |
$600,000 |
The only fair value differing from book value is equipment, which is worth $300,000. Marco has $120,000 in operating losses in prior years. The previous asset values are also the tax basis of the assets, which will be the tax basis for Gusty, since the acquisition is a tax free exchange. Gusty is confident that it will recover the entire tax loss carryforward applicable to the past losses of Marco. The applicable tax rate is 30%.
Required
Record the purchase of the net assets of Marco Incorporated by Gusty Company. You may assume the price paid will allow goodwill to be recorded.