Purchase at alternative prices. Libra Company is purchasing 100% of the outstanding stock of Gemini Company, which has the following balance sheet on the date of acquisition:
|
Assets |
Liabilities and Equity |
||
|
Accounts receivable |
$300,000 |
Current liabilities |
$250,000 |
|
Inventory |
200,000 |
Bonds payable |
200,000 |
|
Property, plant, and equipment (net) |
500,000 |
Common stock ($5 par) |
200,000 |
|
Computer software |
125,000 |
Paid in capital in excess of par |
300,000 |
|
Retained earnings |
175,000 |
||
|
Total assets |
$1,125,000 |
Total liabilities and equity |
$1,125,000 |
Appraisals indicate that the following fair values should be acknowledged:
|
Inventory |
$215,000 |
|
Property, plant, and equipment |
700,000 |
|
Bonds payable |
210,000 |
|
Computer software |
130,000 |
1. Above what price would goodwill be recorded?
2. Below what price would an extraordinary gain be recorded?
Prepare the zone analysis, the determination and distribution of excess schedule and the worksheet elimination entries that would be made if:
3. The price paid for the 100% interest was $1,000,000.
4. The price paid for the 100% interest was $810,000.