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Asset compared to stock purchase. Glass Company is thinking about acquiring Plastic Company. Glass Company is considering two methods of accomplishing control and is wondering how the accounting treatment will differ under each method. Glass Company has estimated that the fair values of Plastic's net assets are equal to their book values, except for the equipment which is understated by $20,000. The following balance sheets have been prepared on the date of acquisition:
Assets
Glass
Plastic
Cash
$520,000
$40,000
Accounts receivable
50,000
70,000
Inventory
100,000
Property, plant, and equipment (net)
250,000
Total assets
$870,000
$460,000
Liabilities and Equity
Current liabilities
$140,000
$80,000
Bonds payable
Stockholders' equity:
Common stock, ($100 par)
200,000
150,000
Retained earnings
280,000
130,000
Total liabilities and equity
1. Assume Glass Company purchased the net assets directly from Plastic Company for $530,000.a. Prepare the entry that Glass Company would make to record the purchase.b. Prepare the balance sheet for Glass Company immediately following the purchase.
2. Assume that 100% of the outstanding stock of Plastic Company is purchased from the former stockholders for a total of $530,000.a. Prepare the entry that Glass Company would make to record the purchase.b. State how the investment would appear on Glass's unconsolidated balance sheet prepared immediately after the purchase.c. Indicate how the consolidated balance sheet would appear.
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