Question

Pluto Corporation purchased Saturn Corporation’s assets and liabilities for $4,500,000 in cash. Saturn's reported assets and liabilities have the following fair values at the date of acquisition:

              

	Fair Value Dr (Cr)
Cash, receivables	$ 5,000,000
Inventory	7,000,000
Land and buildings	30,000,000
Liabilities	(40,000,000)

Saturn also has brand names, with a fair value of $4,000,000, that are not reported on its balance sheet.

a. Using a t-account template:

Prepare the acquisition entry assuming that Pluto is treating this transaction as a merger.

b. Using a t-account template:

Prepare the acquisition entry assuming that Pluto is treating this transaction as a stock acquisition.

Answer 1

a.)	Merger
	Account Titles	Debit $	Credit $
	Cash, receivables	5,000,000
	Inventory	7,000,000
	Land & Buildings	30,000,000
	Brand name	4,000,000
	Liabilities		40,000,000
	Cash		4,500,000
	Bargain Power		1,500,000
b.)	Stock Acquisition
	Account Titles	Debit $	Credit $
	Investment in Saturn Corporation	4,500,000
	Cash		4,500,000