Asset compared to stock purchase. Glass Company is thinking about acquiring Plastic Company. Glass Company is considering two methods of accomplishing control and is wondering how the accounting treatment will differ under each method. Glass Company has estimated that the fair values of Plastic’s net assets are equal to their book values, except for the equipment which is understated by $20,000. The following balance sheets have been prepared on the date of acquisition:

Assets	Glass	Plastic
Cash	$520,000	$40,000
Accounts receivable	50,000	70,000
Inventory	50,000	100,000
Property, plant, and equipment (net)	250,000	250,000
Total assets	$870,000	$460,000

 

Liabilities and Equity
Current liabilities	$140,000	$80,000
Bonds payable	250,000	100,000
Stockholders’ equity:
Common stock, ($100 par)	200,000	150,000
Retained earnings	280,000	130,000
Total liabilities and equity	$870,000	$460,000

1. Assume Glass Company purchased the net assets directly from Plastic Company for $530,000.

a. Prepare the entry that Glass Company would make to record the purchase.

b. Prepare the balance sheet for Glass Company immediately following the purchase.

2. Assume that 100% of the outstanding stock of Plastic Company is purchased from the former stockholders for a total of $530,000.

a. Prepare the entry that Glass Company would make to record the purchase.

b. State how the investment would appear on Glass’s unconsolidated balance sheet prepared immediately after the purchase.

c. Indicate how the consolidated balance sheet would appear.