Exercise 1: Asset Purchase of Another Company

Exercise 1: Asset Purchase of Another Company

Subject: Business / Accounting
Question
Exercise 1: Asset Purchase of Another Company
CheapBeer Inc. wants to purchase the net assets of FancyBrew Inc. for purposes of horizontal
consolidation and will pay $500,000 cash for them. The balance sheet for FancyBrew Inc. on the date
of purchase is as follows:
FancyBrew Inc.
Balance Sheet as of 5/15/17
Assets Liabilities & Owners’ Equity Book Value Cash
A/R
Inventory
Net Fixed Assets
Patents Total Assets: $0
50,000
125,000
175,000
0 $350,000 Fair Market
Value $0
50,000
100,000
200,000
25,000 Book Value A/P
Notes Payable
Mortgage Payable
Total Liabilities: $80,000
25,000
70,000
$175,000 Common Stock
Retained Earnings
Total Equity: 75,000
100,000
$175,000 Total Liabilities & O.E.: $350,000 Fair Market
Value $80,000
25,000
70,000 A) Prepare the journal entry amounts for this asset acquisition on the books of CheapBeer Inc by entering the
proper dollar amounts in the gray-shaded cells. When correct, the cells will change color.
Account
A/R
Inventory
Net Fixed Assets
Patents
Goodwill
Cash
A/P
Notes Payable
Mortgage Payable Debits Credits Total B) Prepare the journal entry amounts for this asset acquisition on the books of FancyBrew Inc. by entering the
proper dollar amounts in the gray-shaded cells. When correct, the cells will change color.
Account Debits Cash
A/P
Notes Payable
Mortgage
A/R
Inventory
Net Fixed Assets
Gain on Sale of Net Assets
Total Credits