Analysis:
In preparation for a possible business combination, a team of experts from Boogie Musical made a thorough examination and audit of Toot-Toot Tuba. They found that Toot-Toot's assets and liabilities were correctly stated except that they estimated uncollectible accounts at $1,400. The experts also estimated the market value of the inventory at $35,000 and the market value of the plant and equipment at $500,000. The business combination took place on January 1, 20X6, and on that date Boogie Musical acquired all the assets and liabilities of Toot-Toot Tuba. On that date, Boogie's common stock was selling for $55 per share.
Problem:
Record the combination on Boogie's book assuming that Boogie issued 9,000 o9f its $10 par common shares in exchange for Toot-Toot's assets and liabilities.
Business Combination
Following are the balance sheets of Boogie Musical Corporation and Toot-Toot Tuba Co. as of December 31, 20X5
| |
BOOGIE MUSICAL CORPORATION |
|
| Balance Sheet |
| December 31, 20X5 |
| Assets |
|
|
Liabilites and Equities |
|
| Cash |
$23,000 |
|
Accounts Payable |
|
$48,000 |
| Accounts Reveivable |
85,000 |
|
Notes Payable |
|
65,000 |
| Allowance for Uncollectible Accounts |
(1,200) |
|
Mortgage Payable |
|
200,000 |
| Inventory |
192,000 |
|
Bonds Payable |
|
200,000 |
| Plant and Equipment |
980,000 |
|
Capital Stock ($10 par) |
500,000 |
| Accumulated Depreciation |
(160,000) |
|
Premium on Capital Stock |
1,000 |
| Other Assets |
14,000 |
|
Retained Earnigns |
|
118,800 |
| |
|
|
|
|
|
|
|
|
|
| Total Assets |
|
|
$1,132,800 |
|
Total Liabilities and Equities |
$1,132,800 |
| |
TOOT-TOOT TUBA COMPANY |
|
| Balance Sheet |
| December 31, 20X5 |
| |
|
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
Liabilites and Equities |
|
| Cash |
|
|
|
$300 |
|
Accounts Payable |
|
$8,200 |
| Accounts Reveivable |
|
|
17,000 |
|
Notes Payable |
|
10,000 |
| Allowance for Uncollectible Accounts |
(600) |
|
Mortgage Payable |
|
50,000 |
| Inventory |
|
|
|
78,500 |
|
Bonds Payable |
|
100,000 |
| Planr and Equipment |
|
|
451,000 |
|
Capital Stock ($10 par) |
100,000 |
| Accumulated Depreciation |
|
(225,000) |
|
Premium on Capital Stock |
150,000 |
| Other Assets |
|
|
25,800 |
|
Retained Earnigns |
|
(71,200) |
| |
|
|
|
|
|
|
|
|
|
| Total Assets |
|
|
$347,000 |
|
Total Liabilities and Equities |
$347,000 |