Parrot Incorporated Purchased the Assets and Liabilities of Sparrow Company

question 40

Essay

Parrot Incorporated purchased the assets and liabilities of Sparrow Company at the close of business on December 31,2013.Parrot borrowed $2,000,000 to complete this transaction,in addition to the $640,000 cash that they paid directly.The fair value and book value of Sparrow's recorded assets and liabilities as of the date of acquisition are listed below.In addition,Sparrow had a patent that had a fair value of $50,000.
$\begin{array}{lll}\text { Accounts payable } & \$ 1,200,000 & \$ 1,200,000 \\\text { Notes payable } & 2,100,000 & 2,100,000 \\\text { Capital stock, } \$ 5 \text { par } & 700,000 & \\\text { Additional paid-in capital } & 1,400,000 & \\\text { Retained Earnings } & \underline{490,000} \\\text { Total Liabilities \& Equities } & \$ 5,890,000\end{array}$ Required:
1.Prepare Parrot's general journal entry for the acquisition of Sparrow,assuming that Sparrow survives as a separate legal entity.
2.Prepare Parrot's general journal entry for the acquisition of Sparrow,assuming that Sparrow will dissolve as a separate legal entity.

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Definitions:

Par Value

The face value of a bond or stock as stated by the issuing company, which bears no correlation to its market value.

Bond Interest Expense

The amount of interest a company must pay periodically to holders of its bonds, as per the interest rate specified in the bond agreement.

Bond Liability

An obligation or debt issued by a company, promising to repay the principal amount along with interest to bondholders at a specified future date.