Question

Parrot Incorporated purchased the assets and liabilities of Sparrow Company at the close of business on December 31, 2011. Parrot borrowed $2,000,000 to complete this transaction, in addition to the $640,000 cash that they paid directly. The fair value and book value of Sparrow's recorded assets and liabilities as of the date of acquisition are listed below. In addition, Sparrow had a patent that had a fair value of $50,000.

Book Value Fair Value

Cash $120,000 $120,000

Inventories 220,000 250,000

Other current assets 630,000 600,000

Land 270,000 320,000

Plant assets-net 4,650,000 4,600,000

Total Assets $5,890,000

Accounts payable $1,200,000 $1,200,000

Notes payable 2,100,000 2,100,000

Capital stock, $5 par 700,000

Additional paid-in capital 1,400,000

Retained Earnings 490,000

Total Liabilities & Equities $5,890,000

Required:

1. Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow survives as a separate legal entity.

2. Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow will dissolve as a separate legal entity.

Answer

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