2 Supemova Company had the following summarized balance sheet on December 31 of

Question

2 Supemova Company had the following summarized balance sheet on December 31 of the current year Assets Accounts receivable Inventory Property and plant (net) $ 350,000 450,000 600,000 $1,400,000 Total Liabilities and Equity Notes payable $ 600,000 300,000 400,000 100,000 $1.400,000 Common stock, $5 par Paid-in capital in excess of par Retained earnings Total The fair value of the inventory and property and plant is $600,000 and $850,000, respectively. Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20 per share, for 100% of the common stock of Supernova Company. Redstar incurred acquisition costs of $5,000 and stock issuance costs of $5,000. Required: a. What journal entries will Redstar Corporation record for the investment in Supernova and issuance of stock? b. Prepare a supporting value analysis and determination and distribution of excess schedule c Prepare Redstar's elimination and adjustment entry for the acquisition of Supemova.

Explanation / Answer

1)

2) Value Analysis

Working Note:

1)

Accounts Receivable 350000

Inventory 600000

Property and Plant 850000

(-) Notes Payable 600000

total 1200000

3)Elimination Entries

Sno Particulars Debit $ Credit $ 1 Investment in Supernova (75000x $20) 1500000 Common Stock(75000x 3) 225000 Paid in Capital in Excess of Par 1275000 2 Acquisition expenses 5000 Paid in Capital in Excess of Par 5000 Cash 10000

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