deferred tax liability Problem 1 Your client. Lewison International, has informed you that it has re

deferred tax liability


Problem 1 Your client. Lewison International, has informed you that it has reached an agreement with Herro Company to acquire Problem 1 Your client. Lewison International, has informed you that it has reached an agreement with Herro Company to acquire all of Herro's assets. This transaction will be accomplished through the issue of Lewison's common stock After your examination of the financial statements and the acquisition agreement, you have discovered the following important facts The Lewison common stock issued has a fair value of $650,000. The fair value of Herro's assets, net of all liabilities, is S700,000. All asset book values equal their fair values except for a machine and a building. The machine is valued at S150,000 and was originally purchased three years ago by Herro for $171,500. This machine has been depreciated using the sum-of-the-years' digit method with an assumed useful life of 7 years and a salvage value of $17,150 On the other hand, the building is valued at S190,000 and was originally purchased five years ago by Herro for $165,000. This machine has been depreciated using the double-declining balance method with an assumed useful life of 11 years and a salvage value of $19,800 The acquisition is to be considered a tax-free exchange for tax purposes Assuming a 25% tax rate, what amounts will be recorded for the machine, building, deferred tax liability, deferred tax asset, and goodwill and/or gains on acquisition?

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