Answer:
The Pratt Company
1. Schedule of Gain on Acquisition:
Current assets $250,000
Land 600,000
Building 1,000,000
Loans payable (300,000)
Intangible assets 1,500,000
Total fair value $3,050,000
Investment cost (3,000,000)
Gain on acquisition $50,000
2. Pratt's Journal Entry to record the merger:
Debit Assets:
Current assets $250,000
Land 600,000
Building 1,000,000
Intangible assets 1,500,000
Credit Loans payable $300,000
Credit Cash $3,000,000
CreditGain on acquisition $50,000
To record the merger of Pratt Company and Sontag Corporation.
3. The gain on acquisition now changes to a loss of $25,000, which is treated as acquired Goodwill.
Explanation:
a) Data and Calculations:
Fair values of Sontag Corporation's Net Assets:
Current assets $250,000
Land 600,000
Building 1,000,000
Intangible assets 1,500,000
Loans payable (300,000)
Total fair value $3,050,000
Investment cost (3,000,000)
Gain on acquisition $50,000
Fair values of Sontag Corporation's Net Assets:
Current assets $250,000
Land 600,000
Building 1,000,000
Intangible assets 1,500,000
Loans payable (300,000)
Contingent liabilities (75,000)
Total fair value $2,975,000
Investment cost (3,000,000)
Loss on acquisition $25,000
= Goodwill on acquisition
