On January 2 20X8 Primary stock In acquired 100 percent of S

On January 2, 20X8, Primary stock. In acquired 100 percent of Street Company\'s for Street\'s stock, Primary issued bonds payable with a par and fair value of directly to the sellings of Street. The two companies continued to operato as separate entities the combination, the book values and fair values of the companies\' assets and Immediately prior to abilities were as follows: Fair Value Book Value Fair Value S 12,000 $12,000 $ 9,000$ 9,000 30,000 Value Cash 41,000 (2,000) 86,000 55,000 960,000 39,00031,000 (1,000) 89,00068,000 200,00050,000 650,000670,000 (220,000) Allowance for Bad Debts Inventory Land 72,000 70,000 500,000 Buildings and Equipment Accumulated Depreciation Patent (411,000) 40,000 Total Assets $ 741,000 990,000 S 607,000$721,000 38,000 38,000 S 29.000 29,000 200,000210,000 10 Current Payables 90,000 210,000100,000 200,000 130,000 - 148,000 ble Stock 300,000 100,000 103,000 Retained Earnings S 741,000 $ 607,000 Total Liabilities & Equity At the date of combination, Street owed Primary $6,000 plus accrued interest of $500 on a short-term note Both companies have properly recorded these amounts. Required: a. Record the business combination on the books of Primary Corporation. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

Solution

Answer: a

Equity Method Entries on Primary Corp.\'s Books:

Investment in Street Co.A/C Dr. 650,000

Bonds Payable A/C 650,000

(Record the initial investment in Street Co.)

Answer:b

4,78,000                                2,00,000                     1,30,000                                   1,48,000

100%Book value =478,000

investment in Street Co. -   4,78,000

48,000

1,72,000

6,500

2,20,000

Answer: c

Answer:d  

BOOK VALUE CALCULATIONS:
	TOTAL BOOK VALUE = COMMON STOCK + ADD\'L PAID-IN CAPITAL + RETAINED EARNINGS
ORIGINAL BOOK VALUE	4,78,000                                2,00,000                     1,30,000                                   1,48,000