Tax loss carryover. Lake Company had the following balance sheet on December 31, 20X1, when it was purchased for $900,000 in cash by Atlantic Corporation:
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Lake Company |
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Assets |
Liabilities and Equity |
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Current assets |
$100,000 |
Current liabilities |
$60,000 |
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|
Equipment (net) |
200,000 |
Stockholders’ equity: |
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|
Building (net) |
270,000 |
Common stock ($5 par) |
$100,000 |
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Retained earnings |
410,000 |
510,000 |
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Total assets |
$570,000 |
Total liabilities and equity |
$570,000 |
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All assets have fair values equal to their book values. The combination is structured as a tax free exchange. Lake Company has a tax loss carryforward of $400,000, which it has not recorded.
The balance of the $400,000 tax loss carryover is considered fully realizable. Atlantic is taxed at a rate of 30%. Record the purchase of Lake Company by Atlantic Corporation.