Prepare allocation schedules under different stock price assumptions (bargain purchase)
Tricia Corporation exchanged 40,000 previously unissued no par common shares for a 40 percent interest in Lisa Corporation on January 1, 2011. The assets and liabilities of Lisa on that date (after the exchange) were as follows (in thousands):
|
Book Value |
Fair Value |
|
|
Cash |
$ 200 |
$ 200 |
|
Accounts receivable—net |
400 |
400 |
|
Inventories |
1,000 |
1,200 |
|
Land |
200 |
600 |
|
Buildings—net |
1,200 |
800 |
|
Equipment—net |
800 |
1,000 |
|
Total assets |
$3,800 |
$4,200 |
|
Liabilities |
$1,800 |
$1,800 |
|
Capital stock |
1,400 |
|
|
Retained earnings |
600 |
|
|
Total equities |
$3,800 |
The direct cost of issuing the shares of stock was $20,000, and other direct costs of combination were $80,000.
REQUIRED
1. Assume that the January 1, 2011, market price for Tricia’s shares is $24 per share. Prepare a schedule to allocate the investment cost/book value differentials.
2. Assume that the January 1, 2011, market price for Tricia’s shares is $16 per share. Prepare a schedule to allocate the investment cost/book value differentials. Assume that other direct costs were $0.