Maurice Tutor
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Exercise 5 (LO 4) Measurement period. Avery Company acquired the net assets of Iowa Company on July 1, 20X1. The net assets acquired include plant assets that are provisionally estimated to have a fair value of $600,000 with a 10-year usable life and no salvage value. Depreciation is recorded based on months in service. The remaining unallocated amount of the price paid is $300,000, which is recorded as goodwill.
At the end of 20X1, Avery prepared the following statements (includes Iowa Company for the last six months):
Balance Sheet
|
Current assets . . . . . . . . . . . . . . |
$ 300,000 |
Current liabilities . . . . . . . . . . . . . . |
$ 300,000 |
|
Equipment (net) . . . . . . . . . . . . . |
600,000 |
Bonds payable . . . . . . . . . . . . . . . |
500,000 |
|
Plant assets (net). . . . . . . . . . . . . |
1,600,000 |
Common stock ($1 par). . . . . . . . . |
50,000 |
|
Goodwill . . . . . . . . . . . . . . . . . . |
300,000 |
Paid-in capital in excess of par . . . |
1,300,000 |
|
|
|
Retained earnings . . . . . . . . . . . . . |
650,000 |
|
Total assets. . . . . . . . . . . . . . . |
$2,800,000 |
Total liabilities and equity . . . . . |
$2,800,000 |
|
Summary Income Statement |
|
|||
|
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
$800,000 |
|
|
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
520,000 |
|
|
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$150,000 |
|
$280,000 |
|
|
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
80,000 |
|
230,000 |
|
|
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
|
$ 50,000 |
|
In March 20X2, the final estimated fair value of the acquired plant assets is $700,000 with no change in the estimate of useful life or salvage value.
1. Prepare any journal entries required in March 20X2.
2. Prepare the revised balance sheet and income statement for 20X1 that will be included in the 20X2 comparative statements.