Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $313,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $23,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $8,000 in connection with stock issuance costs.

Prior to these transactions, the balance sheets for the two companies were as follows:

	Marshall Company Book Value				Tucker Company Book Value
Cash	$	86,700			$	33,200
Receivables		298,000				125,000
Inventory		414,000				238,000
Land		206,000				212,000
Buildings (net)		463,000				276,000
Equipment (net)		223,000				79,500
Accounts payable		(195,000	)			(60,900	)
Long-term liabilities		(500,000	)			(313,000	)
Common stock—$1 par value		(110,000	)
Common stock—$20 par value						(120,000	)
Additional paid-in capital		(360,000	)			0
Retained earnings, 1/1/18		(525,700	)			(469,800	)

Note: Parentheses indicate a credit balance.

In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $7,650, Land by $28,800, and Buildings by $37,000. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

1. Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.
2. To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

Answer 1

Calculation of Investment in Tucker Account and Gain/(loss) if any on acquisiton Fair Value of Tucker Account Account Cash Receivable Inventory Land Buildings (net) Equipment (net) Accounts payable long term liabilities Total Adjustment Book Value Undervalued/(Overvalued) 33,200 125,000 - 238,000 7,650 212,000 28,800 276,000 37,000 79,500 (60,900) (313,000) 589,800 Fair Value 33,200 125,000 245,650 240,800 313,000 79,500 (60,900) (313,000) 663,250 663,250 Investment in Tucker (Fair Value of assets acquired) Consideration transferred by Marshall company: Issued Long term liabilities Issue of common stock (20,000 x 10) Consideration transferred by Marshall company 313,000 200,000 513,000 Gain/(loss) on acquisition of Tucker (663,250 - 513,000) 150,250

Requried A. Cash Receivable Inventory Land Buildings (net) Equipment (net) Total Assets Consolidated Totals 88,900 423,000 659,650 446,800 776,000 302,500 2,696,850 Accounts payable Long term liabilities Common stock Additional paid in-capital Retained earnings Total liabilities and equities 255,900 1,126,000 130,000 532,000 652,950 2,696,850

MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY Worksheet January 1, 2018 Debit Consolidation Entries Credit Accounts Cash Receivables Inventory Land Buildings (net) Equipment (net) Investment in Tucker Total Assets Marshall Company 55,700 298,000 414,000 206,000 463,000 223,000 663,250 2,322,950 Tucker Company ny 33,200 125,000 238,000 [a] 212,000 [a] 276,000 [a] 79,500 Consolidated Totals 88,900 423,000 659,650 446,800 776,000 302,500 7,650 28,800 37,000 663,250 [a + e] 963,700 2,696,850 (60,900) (313,000) (120,000) [e] 120,000 Accounts Payable Long-term liabilities Common stock Additional paid in capital Retained Earnings 1/1/18 Total liabilities and owners equities (195,000) (813,000) (130,000) (532,000) (652,950) (2,322,950) (255,900) (1,126,000) (130,000) (532,000) (652,950) (2,696,850) (469,800) [e] (963,700) 469,800 663,250 663,250 Working Notes Entries Explanation: [e] Is to eliminate the stockholders' equity of Tucker limited [a] Is to record the undervalued amount of the assets acquried

Post Acquisition Balance of Marshal company 1) Cash Balance Marshal's cash balance pre acquisition less: Professional fees paid less: Stock issuance cost Marshal's cash balance post acquisition 86,700 (23,000) (8,000) 55,700 2) Common stock Marshal Common Stock pre acquisiton Add: Stock issue to Tucker (20,000 1) Marshal Common Stock post acquisiton 110,000 20,000 130,000 3) Additional Paid in capital Marshal Additional paid in capital pre acquisiton Add: Stock issue to Tucker (20,000 x 9) Less: Stock issuance cost Marshal Additional paid in capital post acquisiton 360,000 180,000 (8,000) 532,000 4) Long term liabilities Marshal long term liabilities pre acquisiton Add: Long term liabilities issued to Tucker Marshal long term liabilities post acquisiton 500,000 313,000 813,000 5) Retained Earnings Marshal Retained Earnings pre acquisition Add: Gain on Acquisition of Tucker less: Professional fees paid Marshal Retained Earnings post acquisition 525,700 150,250 (23,000) 652,950