Question

Planter Corporation used debentures with a par value of $566,000 to acquire 100 percent of Sorden Company's net assets on January 1, 20X2. On that date, the fair value of the bonds issued by Planter was $550,000. The following balance sheet data were reported by Sorden:
Balance Sheet Item Historical Cost Fair Value
Assets
Cash & Receivables $59, 000 $53, 000
Inventoy 101, 000 203, 000
Plant & Equipment 413,000 310,000
Less: Accunulat ed Depreciation (168,000)
Goodwill 13,000
Total Assets $480, 000 $675, 000
Liabilities and Equities
Accounts Payable $47,000 $47,000
Common Stock 89,000
Additional Paid-In Capital 60, 000
Retained Eamings 284, 000
Total Liabilities& Equities $ 480,000
Required:
1. Determine the amount Planter Corporation would record as a gain on bargain purchase and prepare the journal entry Planter would record at the time of the exchange. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

$78,000

Explanation:

The journal entry is shown below:

Cash & Receivables A/c Dr $53,000

Inventory A/c Dr $203,000

Land A/c Dr $109,000

Plant & Equipment A/c Dr $310,000

Discount on Bonds payable A/c Dr $16,000 ($566,000 - $550,000)

      To Account payable $47,000

      To Bond payable $566,000

      To gain on purchase $78,000

(Being the exchange is recorded and the balancing figure is credited to gain on purchase account)

The computation of gain on purchase account would be

= Fair value of assets - fair value of account payable -  fair value of the bonds issued by Planter

= $675,000 - $47,000 - $550,000

= $78,000

Note: The land historical cost and fair value is $62,000 and $109,000 respectively

This information is not given in the question