Assets Current assets: $ 30,000 50,000 Cash Accounts receivable. 80,000 Noncurrent assets: $120,000 600,000 450,000 800,000 100,000 Investments in marketable securities Land.. Buildings (net) Equipment (net) Goodwill 2,070,000 Total assets $2,150,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Income tax payable . $ 150,000 190,000 $ 340,000 Equity: Common stock ($5 par). Retained earnings $1,200,000 610,000 1,810,000 Total liabilities and equity $2,150,000
Duko Corporation is acquiring the net assets, exclusive of cash, of Weber Company as of January 1, 2015, at which time Weber Company’s balance sheet is as follows: (see attachment)
Duko Corporation feels that the following fair values should be used for Weber’s book values:
Cash (no change) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Investment in marketable securities . . . . . . . . . . . . . . . . . . 150,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Buildings (no change) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Income tax payable (no change). . . . . . . . . . . . . . . . . . . . 190,000
Duko will issue 20,000 shares of its common stock with a $2 par value and a quoted fair value of $60 per share on January 1, 2015, to Weber Company to acquire the net assets. Duko also agrees that two years from now it will issue additional securities to compensate Weber shareholders for any decline in value below that on the date of issue. The estimated settlement amount is $20,000. This is considered to be an equity agreement (not a liability).
1. Record the acquisition on the books of Duko Corporation on January 1, 2015. Include support for calculations used to arrive at the values assigned to the assets and liabilities. Use value analysis to aid your solution.
2. Record settlement (if any) for contingent consideration on January 1, 2017, assuming that the quoted value of the Duko stock is $57.50. (Round shares to nearest whole share.)
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