Question

On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $310,000 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 $27,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $12,000 in connection with stock issuance costs.

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

		Marshall Company		Tucker Company
		Book Value		Book Value
Cash		$	69,600	$	27,600
Receivables			302,000		115,000
Inventory			432,000		224,000
Land			293,000		259,000
Buildings (net)			435,000		276,000
Equipment (net)			212,000		70,200
Accounts payable			-168,000		-53,100
Long-term liabilities			-507,000		-310,000
Common stock—$1 par value			-110,000
Common stock—$20 par value					-120,000
Additional paid-in capital			-360,000		0
Retained earnings, 1/1/21			-598,600		-488,700

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 $7,100, Land by $34,200, and Buildings by $47,200. 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, 2021.

Answer 1

Solution

Compensation Paid
Particulars	Amount
Long term liabilities	310,000
Common stock	200,000
Total compensation	510,000

Value of Tucker co
Particulars	Amount
Cash	27,600
Receivable	115,000
Inventory	216,900
Land	224,800
Building (net)	228,800
Equipment (net)	70,200
Accounts Payable	-53,100
Long term liabilities	-310,000
Net value of asset	520,200
Compensation paid	510,000
Capital reserve	10,200

Post acquisition entry
Particulars	Debit	Credit
Investment in Tucker co.	510,000
Common stock (20000*1)		20,000
APIC (20000*9)		180,000
Long term liabilities		310,000
Recognise in investment in Tucker co.

Consolidated Working Sheet

	Marshall Company	Tucker Company	Consolidated Entries	Consolidated Totals
	Book Value	Book Value	Debit	Credit
Cash	69,600	27,600			97,200
Receivables	3,02,000	1,15,000			4,17,000
Inventory	4,32,000	2,24,000		7100	6,48,900
Land	2,93,000	2,59,000		34200	5,17,800
Investment in Tucker Company			510000	200000	-
				310000	-
Buildings (net)	4,35,000	2,76,000		47200	6,63,800
Equipment (net)	2,12,000	70,200			2,82,200
Total Assets	17,43,600	9,71,800			26,26,900
Accounts payable	1,68,000	53,100			2,21,100
Long-term liabilities	5,07,000	3,10,000	-310000		5,07,000
Common stock—$1 par value	1,10,000				1,10,000
Common stock—$20 par value		1,20,000	-120000	200000	200000
Additional paid-in capital	3,60,000	-			3,60,000
Retained earnings, 1/1/21	5,98,600	4,88,700	-488700	10200	6,08,800
Balance					620000
Total Liabilties & Equities	17,43,600	9,71,800			26,26,900