ABC Manufacturing Corp. (a public company) decided to expand further by purchasing the net assets of XYZ Manufacturing Corp for $3 million cash. XYZ’s statement of financial position at December 31, 2020 follows. XYZ Corp Statement of Financial Position December 31, 2020 Assets Liabilities and Equities Cash........................................... $ 210,000 Accounts payable................... $ 325,000 Receivables................................ 450,000 Common shares..................... 800,000 Inventory................................... 275,000 Retained earnings................... 835,000 Plant assets (net)........................ 1,025,000 Total assets................................ $ 1,960,000 Total equities......................... $ 1,960,000 An appraisal, agreed to by both parties, indicated that the fair value of the inventory was $ 320,000 and the fair value of the plant assets (net) was $ 1,225,000. The fair value of the receivables and payables is equal to the amount reported on the balance sheet. In addition, there was an internally developed patent not recognized in the accounts of XYZ and which has a fair value of $30,000. Required: Prepare ABC Corp.’s entry to record the purchase of XYZ Corp.’s net assets. List all assets and liabilities acquired.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 23E

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ABC Manufacturing Corp. (a public company) decided to expand further by purchasing the net assets of XYZ Manufacturing Corp for $3 million cash. XYZ’s statement of financial position at December 31, 2020 follows. XYZ Corp Statement of Financial Position December 31, 2020 Assets Liabilities and Equities Cash........................................... $ 210,000 Accounts payable................... $ 325,000 Receivables................................ 450,000 Common shares..................... 800,000 Inventory................................... 275,000 Retained earnings................... 835,000 Plant assets (net)........................ 1,025,000 Total assets................................ $ 1,960,000 Total equities......................... $ 1,960,000 An appraisal, agreed to by both parties, indicated that the fair value of the inventory was $ 320,000 and the fair value of the plant assets (net) was $ 1,225,000. The fair value of the receivables and payables is equal to the amount reported on the balance sheet. In addition, there was an internally developed patent not recognized in the accounts of XYZ and which has a fair value of $30,000. Required: Prepare ABC Corp.’s entry to record the purchase of XYZ Corp.’s net assets. List all assets and liabilities acquired.

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