Question

On January 1, 2018 Casey Corporation exchanged $3,218,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems.

At the acquisition date, Casey prepared the following fair-value allocation schedule:

Fair value of Kennedy (consideration transferred)		$3,218,000
Carrying amount acquired		$2,600,000
Excess fair value		$618,000
To buildings (undervalued)	$360,000
To licensing agreements (overvalued)	(162,000)	198,000
To goodwill (indefinite life)		$420,000

Immediately after closing the transaction, Casey and Kennedy prepared the following post acquisition balance sheets from their separate financial records.

Accounts	Casey	Kennedy
Cash	$522,000	$179,250
Accounts Receivable	1,430,000	309,000
Inventory	1,645,000	170,750
Investment in Kennedy	3,218,000	0
Buildings (net)	5,977,500	2,180,000
Licensing agreements	0	3,050,000
Goodwill	128,500	0
Total assets	$12,921,000	$5,889,000
Accounts payable	$ (381,000)	$ (389,000)
Long-term debt	(3,540,000)	(2,900,000)
Common Stock	(3,000,000)	(1,000,000)
Additional paid-in capital	0	(500,000)
Retained earnings	(6,000,000)	(1,100,000)
Total liabilities and equities	$ (12,921,000)	$ (5,889,000)

Prepare an acquisition-date consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation. (Negative amounts should be indicated by a minus sign).

Answer 1

Consolidated balance sheet
Description	Casey	Kennedy	Consolidation impact	Consolidated Balance sheet
Cash	522,000	179,250		701,250
Accounts Receivable	1,430,000	309,000		1,739,000
Inventory	1,645,000	170,750		1,815,750
Investment in Kennedy	3,218,000	-	(3,218,000)	-
Buildings (net)	5,977,500	2,180,000	360,000	8,517,500
Licensing agreements	-	3,050,000	(162,000)	2,888,000
Goodwill	128,500	-	420,000	548,500
Total Assets	12,921,000	5,889,000	(2,600,000)	16,210,000
Accounts payable	(381,000)	(389,000)		(770,000)
Long-term debt	(3,540,000)	(2,900,000)		(6,440,000)
Common Stock	(3,000,000)	(1,000,000)	1,000,000	(3,000,000)
Additional paid-in capital	-	(500,000)	500,000	-
Retained earnings	(6,000,000)	(1,100,000)	1,100,000	(6,000,000)
Total Liabilities	(12,921,000)	(5,889,000)	2,600,000	(16,210,000)