Question

Pot Inc. acquired all Seed Inc.'s outstanding $25 par common stock on December 31, 20X3, in exchange for 41,000 shares of its $25 par common stock. Pot's common stock closed at $57.50 per share on a national stock exchange on December 31, 20X3. Both corporations continued to operate as separate businesses maintaining separate accounting records with years ending December 31. On December 31, 20X4, after year-end adjustments and the closing of nominal accounts, the companies had condensed balance sheet accounts. Pot Inc. Seed Inc. Assets Cash Accounts & Other Receivables Inventories Land Depreciable Assets (net) Investment in Seed Inc. Long-Term Investments & Other Assets Total Assets $ 842,000 2,149,000 2,313,000 666,000 4,576,000 2,793,500 868,000 $14,207,500 $ 335,000 853,000 1,049,000 307,000 1,984,000 395,000 $4,923,000 Liabilities and Stockholders' Equity Accounts Payable and Other Current Liabilities Long-Term Debt Common Stock, $25 Par Value Additional Paid-In Capital Retained Earnings Total Liabilities and Stockholders' Equity $ 2,461,000 1,889,000 3,209,000 1,332,500 5,316,000 $14,207,500 $1,136,000 1,296,000 1,025,000 183,000 1,283,000 $4,923,000 Additional Information 1. Pot uses the equity-method of accounting for its investment in Seed. 2. On December 31, 20X3, Seed's assets and liabilities had fair values equal to the book balances with the exception of land, which had a fair value of $609,500. Seed had no land transactions in 20X4. 3. On June 15, 20X4, Seed paid a cash dividend of $4 per share on its common stock. 4. On December 10, 20X4, Pot paid a cash dividend totaling $263,000 on its common stock. 5. On December 31, 20X3, immediately before the combination, the stockholders' equity balance was: Common Stock Additional Paid-In Capital Retained Earnings Pot Inc. $2,184,000 1,644,000 4,081,000 $7,909,000 Seed Inc. $1,025,000 183,000 847,000 $2,055,000 6. The 20x4 net income amounts according to the separate books of Pot and Seed were $898,000 (exclusive of equity in Seed's earnings) and $600,000, respectively.

Answer 1

- Page: No 0 Answers Consolidated balance sheet work sheet Consolidated enties Debit Credit Consolidated Particular Pot Inc., eed ? Desets :- hand e Cash 842000 335,000 1177,000 Acecounts & other receivable 2,149000 853,000 3,000,000 Inventory 2313000 1049,000 3,362,000 666000 307,000 (a) 302500 1275,500 Depreciable assets (net) 4516,000 1,984,000 6,560,000 2,193,500 (a+b) - Long term investment & 868,000 395,000 1,263,000 :0 other assels Total assets 14,207,500 4,933,000 liabilities & stockholder's equily:- Accounts payable other 2.461,000 1,136,000 3,597,000 Current liabilities Long term debt 1,889,000 1,296,000 3,185,000 Common stock 3,209,000 1,025,000 (3) 1,025,000 3,209,000 Additioned paid in 1,332,500 183,000 (b) 183,000 1,332,500 Capital Rebained earnings 5,316,000 1,283,000 (1) 4283,0CC Total liabilities & cquity 14,204,500 4,923,000 2,793,500 2,49,500 116,639,500

In above balance sheet, Page No ③ * Entry a is to record the value of land at fair value Value of land and fair value = $609500 – $307000 i valuie of land at fair value = $302500 * Entry b is to eliminate the subsidiary stockholder's equity.