Journal entries and balance sheet for an acquisition

Pat Corporation paid $5,000,000 for Saw Corporation’s voting common stock on January 2, 2011, and Saw was dissolved. The purchase price consisted of 100,000 shares of Pat’s common stock with a market value of $4,000,000, plus $1,000,000 cash. In addition, Pat paid $100,000 for registering and issuing the 100,000 shares of common stock and $200,000 for other costs of combination. Balance sheet information for the companies immediately before the acquisition is summarized as follows (in thousands):

Â	Pat	Saw
Â	Book Value	Book Value	Fair Value
Cash	$ 6,000	$ 480	$ 480
Accounts receivable—net	2,600	720	720
Notes receivable—net	3,000	600	600
Inventories	5,000	840	1,000
Other current assets	1,400	360	400
Land	4,000	200	400
Buildings—net	18,000	1,200	2,400
Equipment—net	20,000	1,600	1,200
Total assets	$60,000	$6,000	$7,200
Accounts payable	$ 2,000	$ 600	$ 600
Mortgage payable—10%	10,000	1,400	1,200
Capital stock, $10 par	20,000	2,000	Â
Other paid-in capital	16,000	1,200	Â
Retained earnings	12,000	800	Â
Total equities	$60,000	$6,000	Â

REQUIRED

1. Prepare journal entries for Pat Corporation to record its acquisition of Saw Corporation, including all allocations to individual asset and liability accounts.

2. Prepare a balance sheet for Pat Corporation on January 2, 2011, immediately after the acquisition and dissolution of Saw.