Asset versus stock purchase. Benz Company is contemplating the purchase of the net assets of Cardinal Company for $800,000 cash. To complete the transaction, direct acquisition costs are $15,000. The balance sheet of Cardinal Company on the purchase date is as follows:
|
Cardinal Company |
|||
|
Assets |
Liabilities and Equity |
||
|
Current assets |
$80,000 |
Liabilities |
$100,000 |
|
Land |
50,000 |
Common stock ($10 par) |
100,000 |
|
Building |
450,000 |
Paid in capital in excess of par |
150,000 |
|
Accumulated depreciation, building |
200,000 |
Retained earnings |
230,000 |
|
Equipment |
300,000 |
||
|
Accumulated depreciation, equipment |
100,000 |
||
|
Total assets |
$580,000 |
Total liabilities and equity |
$580,000 |
The following fair values have been obtained for Cardinal’s assets and liabilities:
|
Current assets |
$100,000 |
|
Land |
75,000 |
|
Building |
300,000 |
|
Equipment |
275,000 |
|
Liabilities |
102,000 |
1. Record the purchase of the net assets of Cardinal Company on Benz Company’s books.
2. Record the sale of the net assets on the books of Cardinal Company.
3. Record the purchase of 100% of the common stock of Cardinal Company on Benz’s books. Cardinal Company will remain a separate legal entity.