Question

Marshall Company Book Value				Tucker Company Book Value
Cash	$	88,500			$	22,000
Receivables		325,000				168,000
Inventory		416,000				237,000
Land		214,000				256,000
Buildings (net)		473,000				284,000
Equipment (net)		242,000				50,700
Accounts payable		(191,000	)			(55,500	)
Long-term liabilities		(529,000	)			(350,000	)
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		(568,500	)			(492,200	)

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 $9,900, Land by $20,400, and Buildings by $28,400. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

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.

Show less

	Consolidated Totals Cash Receivables Inventory Land Buildings (net) Equipment (net) Total assets $0 Accounts payable Long-term liabilities Common stock Additional paid-in capital Retained earnings Total liabilities and equities $

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. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

Answer 1

Ans: Here in question, Marshall plans to maintain Tucker's  separate legal entity and to operate Tucker as a wholly owned company. So here in this amalgamation, followings are characteristics-

1. Genuine pooling of assets and liabilities will take place.
2. As Marshall is restating value of inventory, land and building, so here in method of accounting to be used is "The Purchase".
3. Under this "Purchase" method, the assets, liabilities and reserves, if any of the transferor company are recorded in books of transferee company at their existing carrying amount or restated value which can be fair value.
4. Herein question, Inventory, land and building will be taken in books of Marshal at their restated values (after reducing overvalued amount)-Inventories at $227100 ($237000-$9900), Land at $235600 ($256000-$20400) & Building at $256600 ($284000-$28400). The amount of reduction is to be charged from retained earning of Marshall by $58700
5. The above point. 4 means the impact of reduction will be recorded in books of Marshall and stockholder's of Trucker will receive full consideration against value of Inventory, Land & Building as per books of Trucker.

Let's prepare Journal entry for transfer in books of Marshall:

Date	Accounts	Debit	Credit
Jan.1st, 2018	Cash	$22000
	Receivables	$168000
	Inventory	$227100
	Land	$235600
	Building (Net)	$255600
	Equipment (Net)	$50700
	Retained Earning	$58700
	Accounts Payable		$55500
	Long Term Liabilities		$350000
	Retained Earning		$492200
	Business Purchase		$120000
Jan.1st 2018	Business Purchase	$120000
	Common Stock		$120000

Let's Prepare Consolidated Balance Sheet (As on 1st Jan.'2018) in books of Marshall

Particular	Consolidated Totals
Cash ($88500+$22000)	$110500
Receivables($325000+$168000)	$493000
Inventory ($416000+227100)	$643100
Land ($214000+$235600)	$449600
Building (Net) ($473000+$255600)	$728600
Equipment (Net) ($242000+$50700)	$292700
Total Assets	$2717500
Accounts Payable ($191000+$55500)	($246500)
Long Term Liabilities ($529000+$350000)	($879000)
Common Stock ($110000+$120000)	($230000)
Additional Paid in Capital	($360000)
Retained Earning ($568500+$492200-$58700)	($1002000)
Total Liabilities and Equities	$2717500