Question

Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 55,000 shares of its Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that it feels is undervalued by $500,000, an unrecorded License Agreement that the parent values at $250,000, and an unrecorded Customer List owned by the subsidiary that the parent values at $100,000. Any further discrepancy between the purchase price and the book value of the subsidiary's Stockholders' Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition. a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts will each of the following be reported on the consolidated balance sheet? Balance Sheet Parent Subsidiary Assets Cash $910,500 $201,600 Accounts receivable 384,000 417,600 Inventory 582,000 536,400 Equity investment 2,200,000 Property, plant and equipment (PPE), net 2,799,600 992,400 $6,876,100 $2,148,000 Liabilities and stockholders' equity Accounts payable $188,100 $127,000 Accrued liabilities 220,800 221,000 Long term liabilities 1,000,000 600,000 Common stock 220,000 120,000 APIC 3,740,000 150,000 Retained earnings 1,507,200 930,000 $6,876,100 $2,148.000 1. Accounts Receivable $ 2. Equity Investment 3. PPE, net 4. Goodwill 5. Common Stock 6. APIC 7. Retained Earnings $

A A 1. Accounts Receivable $ 2. Equity Investment 3. PPE, net 4. Goodwill 5. Common Stock 6. APIC 7. Retained Earnings A A b. What intangible assets will be reported on the consolidated balance sheet and at what amounts? License Agreement $ Customer List A Goodwill A

Answer 1

		Parent	Subsidiary	Fair value adj.	Fair value of subsidiary's BS
	Cash	$910,500	$201,600		$201,600
	Account receivable	$384,000	$417,600		$417,600
	Inventory	$582,000	$536,400		$536,400
	Equity Investment	$2,200,000
	Property, plant and equipment	$2,799,600	$992,400	$500,000	$1,492,400
	License agreement			$250,000	$250,000
	Customer list			$100,000	$100,000
		$6,876,100	$2,148,000		$2,998,000
	Accounts payable	$188,100	$127,000		$127,000
	Accrued liabilities	$220,800	$221,000		$221,000
	Long term liabilities	$1,000,000	$600,000		$600,000
	Common stock	$220,000	$120,000
	APIC	$3,740,000	$150,000
	Retained earnings	$1,507,200	$930,000
		$6,876,100	$2,148,000		$948,000
				Net Assets	$2,050,000	(2,998,000-948,000)
			Purchase consideration		$2,200,000	(55,000*40)
				Goodwill	$150,000
a
1	Account receivable	$801,600	(384,000+417,600)
2	Equity Investment	$0	(eliminated)
3	PPE, Net	$4,292,000	(1492,400+2799600)
4	Goodwill	$150,000	(calculated above)
5	Common stock	$220,000	(parent only)
6	APIC	$3,740,000	(parent only)
7	Retained earnings	$1,507,200	(parent only)
b	Intangible assets
	License agreement	$250,000
	Customer list	$100,000
	Goodwill	$150,000

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