Stock purchase, goodwill. HT Corporation is contemplating the acquisition of the net assets of Smith Company on December 31, 20X1. It is considering making an offer, which would include a cash payout of $290,000 along with giving 10,000 shares of its $2 par value common stock that is currently selling for $20 per share. The balance sheet of Smith Company is given below, along with estimated fair values of the net assets to be acquired.
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Smith Company |
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Book Value |
Fair Value |
Book Value |
Fair Value |
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Current assets: |
Current liabilities: |
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Notes receivable |
$33,000 |
$33,000 |
Accounts payable |
$63,000 |
$63,000 |
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Inventory |
89,000 |
80,000 |
Taxes payable |
15,000 |
15,000 |
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Prepaid expenses |
15,000 |
15,000 |
Interest payable |
3,000 |
3,000 |
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Total current assets |
$137,000 |
$128,000 |
Total current liabilities |
$81,000 |
$81,000 |
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Investments |
$36,000 |
$55,000 |
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Fixed assets: |
Other liabilities: |
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Land |
$15,000 |
$90,000 |
Bonds payable |
$250,000 |
$250,000 |
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Buildings |
115,000 |
170,000 |
Discount on bonds payable |
18,000 |
30,000 |
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Equipment |
256,000 |
250,000 |
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Vehicles |
32,000 |
25,000 |
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Total fixed assets |
$418,000 |
$535,000 |
Total other liabilities |
$232,000 |
$220,000 |
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Intangibles: |
Stockholders’ equity: |
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Franchise |
$56,000 |
$70,000 |
Common stock |
$50,000 |
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Paid in capital in excess of par |
200,000 |
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Retained earnings |
84,000 |
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Total equity |
$334,000 |
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Total assets |
$647,000 |
$788,000 |
Total liabilities and equity |
$647,000 |
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Required
Do zone analysis and prepare the entry on the books of HT Corporation to record the acquisition of Smith Company.