PNC Corporation acquires all of the assets and liabilities of SPN Company in a nontaxable acquisition at the beginning of 2020, reporting the acquisition as a merger. The tax basis of SPN's buildings and equipment was $35 million. Their date-of-acquisition fair values totaled $15 million. The buildings and equipment have an average remaining life, as of the date of acquisition, of 20 years. During 2020, PNC reports income before depreciation on SPN's buildings and equipment of $4 million. Assume a tax rate of 25%.
Required
a. At what value does PNC report acquired deferred taxes at the date of acquisition?
Is this an asset or liability? Explain.
b. Prepare PNC's journal entry to record income taxes for 2020. Report taxes owed as taxes payable.

Question

PNC Corporation acquires all of the assets and liabilities of SPN Company in a nontaxable acquisition at the beginning of 2020, reporting the acquisition as a merger. The tax basis of SPN's buildings and equipment was $35 million. Their date-of-acquisition fair values totaled $15 million. The buildings and equipment have an average remaining life, as of the date of acquisition, of 20 years. During 2020, PNC reports income before depreciation on SPN's buildings and equipment of $4 million. Assume a tax rate of 25%.
Required 
a. At what value does PNC report acquired deferred taxes at the date of acquisition? 
Is this an asset or liability? Explain.
b. Prepare PNC's journal entry to record income taxes for 2020. Report taxes owed as taxes payable.

Quizplus · Accepted Answer

The Answer of PNC Corporation acquires all of the assets and liabilities of SPN Company in a nontaxable acquisition at the beginning of 2020, reporting the acquisition as a merger. The tax basis of SPN's buildings and equipment was $35 million. Their date-of-acquisition fair values totaled $15 million. The buildings and equipment have an average remaining life, as of the date of acquisition, of 20 years. During 2020, PNC reports income before depreciation on SPN's buildings and equipment of $4 million. Assume a tax rate of 25%.
Required 
a. At what value does PNC report acquired deferred taxes at the date of acquisition? 
Is this an asset or liability? Explain.
b. Prepare PNC's journal entry to record income taxes for 2020. Report taxes owed as taxes payable.

PNC Corporation Acquires All of the Assets and Liabilities of SPN