D&D for nontaxable exchange. Rainman Corporation is considering the acquisition of Lamb Company through the purchase of Lamb’s common stock. Rainman Corporation will issue 20,000 shares of its $5 par common stock, with a fair value of $25 per share, in exchange for all 10,000 outstanding shares of Lamb Company’s voting common stock.
The acquisition meets the criteria for a tax free exchange as to the seller. Because of this, Rainman Corporation will be limited for future tax returns to the book value of the depreciable assets. Rainman Corporation falls into the 30% tax bracket.
The appraisal of the assets of Lamb Company showed that the inventory has a fair value of $120,000, and the depreciable fixed assets have a fair value of $270,000. Any excess is attributed to goodwill. Lamb Company had the following balance sheet just before the acquisition:
|
Lamb Company |
||||
|
Assets |
Liabilities and Equity |
|||
|
Cash |
$40,000 |
Current liabilities |
$70,000 |
|
|
Accounts receivable |
150,000 |
Bonds payable |
100,000 |
|
|
Inventory |
100,000 |
Stockholders’ equity: |
||
|
Depreciable fixed assets |
210,000 |
Common stock ($10 par) |
$100,000 |
|
|
Retained earnings |
230,000 |
330,000 |
||
|
Total assets |
$500,000 |
Total liabilities and equity |
$500,000 |
|
1. Record the acquisition of Lamb Company by Rainman Corporation.
2. Prepare a determination and distribution of excess schedule.
3. Prepare the elimination entries that would be made on the consolidated worksheet.