Purchase Solution

Purchase Using Cash and Using Stock

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Balance sheets for Prego Company and Sprague Company as of December 31, 2010, follow:

Prego Company Sprague Company
Cash $ 700,000 $111,000
Accounts receivable (net) 892,000 230,000
Inventory 544,000 60,000
Property and equipment (net) $1,927,000 $468,000
Land 120,000 94,000
Total assets $4,183,000 $963,000

Accounts payable $ 302,000 $152,000
Notes payable 588,000 61,000
Long-term debt 350,000 90,000
Common stock 1,800,000 500,000
Other contributed capital 543,000 80,000
Retained earnings 600,000 80,000
Total equities $4,183,000 $963,000

The fair values of Sprague Company's assets and liabilities are equal to their book values.

Prepare a consolidated balance sheet as of January 1, 2011, under each of the following assumptions:

A. On January 1, 2011, Prego Company purchased 90% of the outstanding common stock of Sprague Company for $594,000.

B. On January 1, 2011, Prego Company exchanged 11,880 of its $20 par value common shares with a fair value of $50 per share for 90% of the outstanding common shares of Sprague Company. The transaction is a purchase.

Please answer the question in Excel and show all work so I can understand where I went wrong. Thanks!

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Solution Summary

The expert examines purchases using cash and using stocks.

Solution provided by:
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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