Record the investment and related events

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Reference no: EM13843751

Problem 1: On January 1, 2014, Savage Company has the following balance sheet:

Assets

Liabilities & Equities

Cash

$100,000

Current liabilities

$40,000

Note receivable

120,000

Bonds payable

110,000

Inventory

70,000

Common stock ($10 par)

200,000

Land

40,000

Additional paid-in-capital

150,000

Buildings(net)

120,000

Retained earnings

250,000

Equipment(net)

80,000

 

 

Total

$750,000

Total

$750,000

The fair values of the assets and liabilities are the same as their book values except for land (fair value = $60,000), building (fair value = $150,000), and equipment (fair value = $100,000). The remaining useful lives of the buildings and equipment are 15 and 5 years, respectively. Salvage reported net income during 2014 of $130,000 and declared and paid dividends of $30,000.

Required:

a. Assume Piedmont Corporation purchased a 30% interest in Savage Company for $201,000 on January 1, 2014. Assuming this investment gives Piedmont the ability to exercise significant influence over Savage, prepare all necessary journal entries to record the investment and related events during 2014.

b. Assume instead that Piedmont Corporation purchased a 10% interest in Savage Company for $67,000 on January 1, 2014 and does NOT have the ability to exercise significant influence over Savage. If Savage is closely held company and does not have a determinable fair value, prepare all necessary journal entries to record the investment and related events during 2014.

c. Assume instead that Piedmont Corporation purchased all of the net assets of Savage Company on January 1, 2014 for $700,000 cash in a statutory merger (Savage transfers all of its assets and liabilities to Piedmont and dissolves). Prepare any necessary journal entries to record this purchase.

d. Assume instead that Piedmont Corporation purchased all of the outstanding stock of Savage Company on January 1, 2014 for $700,000 cash. Savage will continue to operate as a separate legal entity in a business combination accounted for using the acquisition method. In addition, Piedmont paid $25,000 on January 1, 2014 in direct acquisition costs incurred in negotiating the purchase. Prepare all necessary journal entries to record the acquisition and related events during the year 2014.

Reference no: EM13843751

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