Question - On January 1, 2003, Cale Corp. paid $1,020,000 to purchase Kaltop Co. Kaltop maintained separate incorporation.
Cale used the equity method to account for the investment. Cale also paid $20,000 to investment bankers to arrange the acquisition. Since it was a cash purchase, there were no issue costs for securities.
Katop's assets, liabilities, and stockholders' equity accounts were as follows:
1-Jan-03 FAIR BOOKMARKET VALUEVALUE dr (cr)dr (cr)DIFFERENCE
CURRENT ASSET $120,000 $120,000 $-
LAND $72,000 $192,000 $120,000
BUILDING (20 YR LIFE) $240,000 $268,000 $28,000
EQUIPMENT (10 YR LIFE) $540,000 $516,000 $(24,000)
CURRENT LIABILITIES $(24,000) $(24,000) $-
LONG TERM LIABILITIES $(120,000) $(120,000) $-
COMMON STOCK $(228,000)
ADDITIONAL PAID IN CAPITAL $(384,000)
RETAINED EARNINGS $(216,000)
CHECK TOTAL $- $952,000 $124,000
PARTIAL WORKSHEET FOR DECEMBER 31, 2003: PART D
CALEKALTOPELIMINATIONS
dr(cr)dr(cr)drcr
INCOME STATEMENT:
Revenue $(350,000)
Expenses $224,000 E $-
Equity income in subsidiary $- I $- $-
Net income $(126,000)
RETAINED EARNINGS STATEMENT:
Retained earnings 1/1/2003 $(216,000) S $216,000
Net income $(126,000)
Less dividends paid $48,000 D $48,000
Retained earning 12/31/2003 $(294,000)
BALANCE SHEET 12/31/2003
Current assets $162,000
Land $72,000 A $-
Buildings $228,000 A $- E $-
Equipment $486,000 E $- A $-
Goodwill (if any) A $-
Investment in Kaltop $- D $48,000 S $828,000 $(780,000)
A $-
I $-
Current liabilities
Long term liabilities $(120,000)
Common stock $(228,000) S $228,000
Additional paid in capital $(384,000) S $384,000
Retained earnings 1/1/2003 $(216,000)
TOTAL BALANCE SHEET $-
REQUIRED:
A. Determine any investment cost over the book value of the net assets of Kaltop and any goodwill.
B. Create a journal entry to record the purchase of Kaltop's stock on January 1, 2003.