Supernova Company Had the Following Summarized Balance Sheet on December

question 40

Essay

Supernova Company had the following summarized balance sheet on December 31 of the current year:
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$\begin{array}{lr}\text { Assets }\\\text { Accounts receivable } & \$ 200,000 \\\text { Inventory } & 450,000 \\\text { Property and plant (net) } & 600,000 \\\text { Goodwill } & \underline{150,000} \\\quad \text { Total } & \$ \underline{1,400,000}\\\\\text {Liabilities and Equity}\\\text { Notes payable } & \$ 600,000 \\\text { Common stock, } \$ 5 \text { par } & 300,000 \\\text { Paid-in capital in excess of par } & 400,000 \\\text { Retained earnings } & 100,000 \\\quad \text { Total } & \$ 1,400,000\end{array}$ The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
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Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20 per share, for 100% of the common stock of Supernova Company.Redstar incurred acquisition costs of $5,000 and stock issuance costs of $5,000.
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Required:
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a.What journal entries will Redstar Corporation record for the investment in Supernova and issuance of stock?
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b.Prepare a supporting value analysis and determination and distribution of excess schedule
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c.Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.

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Definitions:

Partnership Cash

Funds held and utilized within a partnership, which are contributed by and available to the partners according to the partnership agreement.

Liability

A financial obligation or debt that a company owes, which must be settled over time through the transfer of economic benefits including money, goods, or services.

Withdrawing Partner

An individual partner who exits a partnership, thereby receiving their share of the partnership's assets after settling any liabilities.

Accounts Receivable

Money owed to a business by its clients or customers for goods or services delivered but not yet paid for, recorded as an asset on the balance sheet.