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On January 1, 2014, Perez Company acquired all the assets and assumed all the liabilities of Stalton Company and merged Stalton into Perez. In exchange for the net assets of Stalton, Perez gave its bonds payable with a maturity value of $600,000, a stated interest rate of 10%, interest payable semiannually on June 30 and December 31, a maturity date of January 1, 2024, and a yield rate of 12%.
Balance sheets for Perez and Stalton (as well as fair value data) on January 1, 2014, were as follows:
| Perez | Stalton | ||||
| Book Value | Book Value | Fair Value | |||
| Cash | $ 250,000 | $114,000 | $114,000 | ||
| Receivables | 352,700 | 150,000 | 135,000 | ||
| Inventories | 848,300 | 232,000 | 310,000 | ||
| Land | 700,000 | 100,000 | 315,000 | ||
| Buildings | 950,000 | 410,000 | 54,900 | ||
| Accumulated depreciation –
buildings |
(325,000) | (170,500) | |||
| Equipment | 262,750 | 136,450 | 123,700 | ||
| Accumulated depreciation –
equipment |
(70,050) | (90,450) | (84,250) | ||
| Total assets | $ 2,968,700 | $ 881,500 | $ 968,350 | ||
| Current liabilities | $ 292,700 | $95,300 | $95,300 | ||
| Bonds payable, 8% due 1/1/2019, Interest payable 6/30 and 12/31 |
300,000 | 260,000 | |||
| Common stock, $15 par value | 1,200,000 | ||||
| Common stock, $5 par value | 236,500 | ||||
| Other contributed capital | 950,000 | 170,000 | |||
| Retained earnings | 526,000 | 79,700 | |||
| Total equities | $ 2,968,700 | $ 881,500 | |||
Required:
Prepare the journal entry on the books of Perez Company to record the acquisition of Stalton Company’s assets and liabilities in exchange for the bonds.
Expert Answer
Solution:
