Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $318,000 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 $20,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $5,000 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 ValueCash$70,200 $35,000 Receivables 280,000 113,000 Inventory 381,000 218,000 Land 224,000 221,000 Buildings (net) 474,000 307,000 Equipment (net) 227,000 66,000 Accounts payable (172,000) (50,100)Long-term liabilities (446,000) (318,000)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 (568,200) (471,900) 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 $30,800, and Buildings by $33,200. Marshall plans to maintain Tucker's separate legal identity and to operate Tucker as a wholly owned subsidiary.

1.Determinethe 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 worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

Answer 1

Balance sheet before acquisition
Particulars	Marshall co	Tucker co
Cash	70,200	35,000
Receivable	280,000	113,000
Inventory	381,000	218,000
Land	224,000	221,000
Building (net)	474,000	307,000
Equipment (net)	227,000	66,000
Total	1,656,200	960,000
Accounts Payable	172,000	50,100
Long term liabilities	446,000	318,000
Common stock	110,000	120,000
APIC	360,000	-
Retained earnings	568,200	471,900
Total	1,656,200	960,000

Compensation Paid
Particulars	Amount
Long term liabilities	318,000
Common stock	200,000
Total compensation	518,000

Value of Tucker co
Particulars	Amount
Cash	35,000
Receivable	113,000
Inventory	210,900
Land	190,200
Building (net)	273,800
Equipment (net)	66,000
Accounts Payable	-50,100
Long term liabilities	-318,000
Net value of asset	520,800
Compensation paid	518,000
Capital reserve	2,800

Post acquisition entry
Particulars	Debit	Credit
Investment in Tucker co.	518,000
Common stock (20000*1)		20,000
APIC (20000*9)		180,000
Long term liabilities		318,000
Recognise in investment in Tucker co.
Post acquisition Balance sheet
Particulars	Marshall co
Cash	70,200
Receivable	280,000
Inventory	381,000
Land	224,000
Building (net)	474,000
Equipment (net)	227,000
Investment in Tucker co.	518,000
Total	2,174,200
Accounts Payable	172,000
Long term liabilities (446+318)	764,000
Common stock (110+20)	130,000
APIC (360+180)	540,000
Retained earnings	568,200
Total	2,174,200