Question

Assume the Parent company acquires its subsidiary by exchanging 35,000 shares of its Common Stock, with a fair value on the acquisition date of $60 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary’s assets and liabilities at an amount equaling their book values except for an unrecorded Patent owned by the subsidiary with a fair value of $200,000. Any further discrepancy between purchase price and the book value of the subsidiary’s Stockholders’ Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition.

1. How much is the consideration paid to acquire the subsidiary on the acquisition date?
2. How much Goodwill is recognized?
3. Prepare the consolidation worksheet on the date of acquisition given the balance sheets of the parent and subsidiary on that date.

Answer 1

The Consideration paid to acquire the subsidiary is the

35000 shares @ $60 = $2,100,000

Book Values of the Assets and Liabilities aren't given in the question at the moment. Hence Goodwill and Consolidation worksheet can't be completed.