On 1/1/20x0, Prospector, Inc. paid $5,875,000 to acquire 100% of the outstanding common stock of...
70.2K
Verified Solution
Link Copied!
Question
Accounting
On 1/1/20x0, Prospector, Inc. paid $5,875,000 to acquire 100% of the outstanding common stock of Sinclair Company. After the acquisition, Sinclair will remain in business as a separate operating company. Additionally, Prospector, Inc. will account for their investment using the equity method.
At the acquisition date, Sinclair Corporations stockholders equity was as follows:
Sinclair Corporation
Statement of Shareholders' Equity
1/1/20x0
Retained earnings
$1,500,000
Common Stock
500,000
Total Shareholders Equity 1/1/20x0
$2,000,000
In addition, the fair value in excess of book value and the remaining useful lives of certain noncurrent assets/noncurrent liabilities of Sinclair Company at acquisition were:
Software licenses, (10-years): $2,500,000,
Unpatented technology (8 years): $800,000, and
Understatement of long-term debt (5 years): $100,000
The book value of all other assets and liabilities were equal to their fair values.
During 20x0, Sinclair reported net income of $480,000 while paying dividends of $25,000. During 20x1, Sinclair reported net income of $960,000 while paying dividends of $50,000.
Record Prospector Inc.s acquisition of Sinclair Corporation at 1/1/20x0.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
