Worksheet for nontaxable exchange. The balance sheets of Tip Company and Kord Company as of December 31, 20X6, are as follows:
| |
Tip |
Kord |
|
Cash
|
$ 1,200,000
|
$ 50,000
|
|
Accounts receivable
|
2,400,000
|
300,000
|
|
Inventory
|
11,200,000
|
1,500,000
|
|
Prepayments
|
422,000
|
47,000
|
|
Depreciable ?xed assets
|
18,978,000
|
2,100,000
|
|
Investment in Kord Company
|
2,400,000
|
|
|
Total assets
|
$36,600,000
|
$3,997,000
|
|
Payables
|
$ 7,200,000
|
$1,750,000
|
|
Accruals
|
1,615,000
|
400,000
|
|
Common stock ($100 par)
|
10,000,000
|
1,000,000
|
|
Retained earnings
|
17,785,000
|
847,000
|
|
Total liabilities and equity
|
$36,600,000
|
$3,997,000
|
An appraisal on December 31, 20X6, which is considered carefully and approved by the boards of directors of both companies, places a total replacement value, less depreciation, of $3,000,000 on Kord's depreciable ?xed assets. The remaining depreciable life is 20 years.
Tip Company offers to purchase all the assets of Kord Company, subject to its liabilities, as of December 31, 20X6, for $3,000,000. However, 20% of the stockholders of Kord Company object to the price because it does not include any consideration for goodwill, which they believe to be worth at least $500,000. A counterproposal is made, and a ?nal agreement is reached. In exchange for its own shares, Tip acquires 8,000 shares of the common stock of Kord at the agreed-upon fair value of $300 per share. The purchase is structured as a tax-free exchange to the seller; thus, Tip will use the book value of the assets for future tax purposes. The tax rate for both companies is 30%.
Required
Prepare a consolidated worksheet and a consolidated balance sheet as of December 31, 20X6. Include a value analysis and a determination and distribution schedule.