Parrot Incorporated Purchased the Assets and Liabilities of Sparrow Company

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.