Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $272,000 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 $32,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $16,500 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	$	79,200			$	32,800
Receivables		287,000				109,000
Inventory		437,000				239,000
Land		281,000				211,000
Buildings (net)		423,000				236,000
Equipment (net)		233,000				54,600
Accounts payable		(156,000	)			(68,700	)
Long-term liabilities		(465,000	)			(272,000	)
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		(649,200	)			(421,700	)

In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $9,000, Land by $23,400, and Buildings by $36,000. 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

To calculate the Goodwill or capital reserve :
Particulars	Tukker company	Tukker company
	(book value)	( Fair value)
Cash	$ 32,800	$ 32,800
receivables	$ 109,000	$ 109,000
inventory	$ 239,000	$ 248,000       {239,000+90000}
land	$ 211,000	$ 234,400       {211,000+23400}
buildings(net )	$ 236,000	$ 272,000      {236,000+36,000}
equipment (net )	$ 54,600	$ 54,600
Total assets	$ 882,400	$ 950,800
accounts payable	$ 68,700	$ 68,700
long term liabilities	$ 272,000	$ 272,000
Total liabilities	$ 340,700	$ 340,700
Net asset value	$ 541,700 {882,400 -340,700}	$ 610,100 {950,800 -340,700}
To calculate the Total payments
Particulars	Amounts($)
common stock issued	$ 200,000 {20,000 shares*10}
long term liabilities issued	$ 272,000
Total payments	$ 472,000
Good will or (capital reserve )= Total payments - net asset value at fair value
Good will or (capital reserve )= $ 472,000 - $ 610,100
Good will or (capital reserve )= ( $ 138,100)
SO, capital reserve = $ 138,100

No	General journal	Debit	Credit
1)	Business purchase	$ 610,100
	Capital reserve		$ 138,100
	Purchase consideration		$ 472,000
	(To record business acquisition )
2)	Capital reserve (32,000+16500)	$ 48,500
	Bank		$ 48,500
	( To record business acquisition expense)
3)	Cash	$ 32,800
	receivables	$ 109,000
	inventory	$ 248,000
	land	$ 234,400
	buildings(net )	$ 272,000
	equipment (net )	$ 54,600
	Accounts payable		$ 68,700
	long term liabilities		$ 272,000
	Business purchase (Bal in fig)		$ 610,100
	( to record recognition of assets and liabilities )
4)	Purchase consideration	$ 472,000
	share capital (20,000 shares * $1 )		$ 20,000
	security premium (20,000 shares * $9 )		$ 180,000
	loan payable		$ 272,000
	(To record payment of purchase consideration )

Consolidated balance sheet of two companies as of January 1,2018
Particulars	Marshall company	New purchase-Tucker company	Impact of statement	Revised position
Assets :
Cash	$ 79,200	$ 32,800	($ 48,500)	$ 63,500
receivables	$ 287,000	$ 109,000		$ 396,000
inventory	$ 437,000	$ 248,000       {239,000+90000}		$ 685,000
land	$ 281,000	$ 234,400       {211,000+23400}		$ 515,400
buildings(net )	$ 423,000	$ 272,000      {236,000+36,000}		$ 695,000
equipment (net )	$ 233,000	$ 54,600		$ 287,600
Goodwill	$ 0	$ 0		$ 0
Total assets	$ 1,740,200	$ 950,800		$ 2,642,500
liabilities and equity:
Accounts payable	$ 156,000	$ 68,700		$ 224,700
long term liability	$ 465,000	$ 272,000	$ 272,000	$ 1,009,000
common stock	$ 110,000		20,000 {20,000 shares*$1}	$ 130,000
additional paid in capital	$ 360,000			$ 360,000
retained earnings	$ 649,200		$ 180,000 {20,000 shares*9}	$ 829,200
capital reserve			$ 89,600 {138,100 -48,500}	$ 89,600
Total liabilities and equity	$ 1,740,200	$ 340,700		$ 2,642,500