Worksheet for nontaxable exchange with tax loss carryover. The balance sheets of Tip Company and Kim Company as of December 31, 20X6, are as follows:
|
Tip |
Kim |
|
|
Cash |
$1,200,000 |
$50,000 |
|
Accounts receivable |
2,400,000 |
300,000 |
|
Inventory |
11,200,000 |
1,500,000 |
|
Prepayments |
422,000 |
47,000 |
|
Depreciable fixed assets |
18,978,000 |
2,100,000 |
|
Investment in Kim Company |
2,400,000 |
|
|
Total assets |
$36,600,000 |
$3,997,000 |
|
Payables |
$7,200,000 |
$1,750,000 |
|
Accruals |
1,615,000 |
400,000 |
|
Common stock ($100 par) |
10,000,000 |
1,000,000 |
|
Retained earnings |
17,785,000 |
847,000 |
|
Total liabilities and equity |
$36,600,000 |
$3,997,000 |
An appraisal on December 31, 20X6, which was considered carefully and approved by the boards of directors of both companies, placed a total replacement value, less depreciation, of $3,000,000 on Kim’s depreciable fixed assets.
Tip Company offered to purchase all the assets of Kim Company, subject to its liabilities, as of December 31, 20X6, for $3,000,000. However, 20% of the stockholders of Kim Company objected to the price because it did not include any consideration for goodwill, which they believed to be worth at least $500,000. A counterproposal was made, and a final agreement was reached. In exchange for its own shares, Tip acquired 80% of the common stock of Kim at the agreedupon fair value of $300 per share. The purchase is structured as a tax free exchange to the seller; thus, Tip will use the book value of the assets for future tax purposes. The tax rate for both companies is 30%.
Prepare a consolidated worksheet and a consolidated balance sheet as of December 31, 20X6. Include a determination and distribution schedule.
Required
Prepare a consolidated worksheet and a consolidated balance sheet as of December 31, 20X6. Include a determination and distribution schedule.