Asset Purchase
Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company”s balance sheet was as follows:
|
Book Value |
Fair Value |
|
|
Cash |
$120,000 |
$120,000 |
|
Receivables (net) |
192,000 |
228,000 |
|
Inventory |
360,000 |
396,000 |
|
Plant and equipment (net) |
480,000 |
540,000 |
|
Land |
420,000 |
660,000 |
|
Total assets |
$1,572,000 |
$1,944,000 |
|
Liabilities |
$ 540,000 |
$ 594,000 |
|
Common stock ($5 par value) |
480,000 |
|
|
Other contributed capital |
132,000 |
|
|
Retained earnings |
420,000 |
|
|
Total equities |
$1,572,000 |
Required:
- Prepare the journal entries on the books of Preston Company to record the purchase of the assets and assumption of the liabilities of Saville Company if the amount paid was $1,560,000 in cash.
- Repeat the requirement in (A) assuming that the amount paid was $990,000.