The Chan Corporation purchased the net assets (existing liabilities were assumed) of the Don Company for $900,000 cash. The balance sheet for the Don Company on the date of acquisition showed the following:
Required:
The equipment has a fair value of $300,000, and the plant assets have a fair value of $500,000. Assume that the Chan Corporation has an effective tax rate of 40%. Prepare the entry to record the purchase of the Don Company for each of the following separate cases with specific added information:
a.
The sale is a nontaxable exchange to the seller that limits the buyer to depreciation and amortization on only book value for tax purposes.
b.
The bonds have a current fair value of $190,000. The transaction is a taxable exchange.
c.
There are $100,000 of prior-year losses that can be used to claim a tax refund. The transaction is a taxable exchange.
d.
There are $150,000 of past losses that can be carried forward to future years to offset taxes that will be due. The transaction is a nontaxable exchange.

Question

The Chan Corporation purchased the net assets (existing liabilities were assumed) of the Don Company for $900,000 cash. The balance sheet for the Don Company on the date of acquisition showed the following:
  Required:
The equipment has a fair value of $300,000, and the plant assets have a fair value of $500,000. Assume that the Chan Corporation has an effective tax rate of 40%. Prepare the entry to record the purchase of the Don Company for each of the following separate cases with specific added information: 
a.
The sale is a nontaxable exchange to the seller that limits the buyer to depreciation and amortization on only book value for tax purposes.
b.
The bonds have a current fair value of $190,000. The transaction is a taxable exchange.
c.
There are $100,000 of prior-year losses that can be used to claim a tax refund. The transaction is a taxable exchange.
d.
There are $150,000 of past losses that can be carried forward to future years to offset taxes that will be due. The transaction is a nontaxable exchange.

Quizplus · Accepted Answer

The Answer of The Chan Corporation purchased the net assets (existing liabilities were assumed) of the Don Company for $900,000 cash. The balance sheet for the Don Company on the date of acquisition showed the following:
  Required:
The equipment has a fair value of $300,000, and the plant assets have a fair value of $500,000. Assume that the Chan Corporation has an effective tax rate of 40%. Prepare the entry to record the purchase of the Don Company for each of the following separate cases with specific added information: 
a.
The sale is a nontaxable exchange to the seller that limits the buyer to depreciation and amortization on only book value for tax purposes.
b.
The bonds have a current fair value of $190,000. The transaction is a taxable exchange.
c.
There are $100,000 of prior-year losses that can be used to claim a tax refund. The transaction is a taxable exchange.
d.
There are $150,000 of past losses that can be carried forward to future years to offset taxes that will be due. The transaction is a nontaxable exchange.

The Chan Corporation Purchased the Net Assets (Existing Liabilities Were