Question

Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries
Assume that the parent company acquires its subsidiary by exchanging 84,000 shares of its $2 par value Common Stock, with a fair value on the acquisition date of $45 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 an unrecorded Trademark with a fair value of $240,000, an unrecorded Video Library valued at $600,000, and Patented Technology with a fair value of $125,000.
a. Prepare the journal entry that the parent makes to record the acquisition. General Journal Description Debit Credit Common stock b. Given the following acquisition-date balance sheets of the parent and the subsidiary, prepare the consolidation entries. Parent Subsidiary Balance Sheet Assets Cash Accounts receivable Inventory Equity investment Property, plant & equipment $514,020 $265,160 450,300 633,360 650,000 813,540 3,780,000 10,600,000 2,255,140 $15,994,320 $3,967,200 Liabilities and stockholders' equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC $150,480 $177,800 176,640 309,400 3,840,000 910,000 428,400 432,000 3,864,000 477,500 7,534,800 1,660,500 $15,994,320 $3,967,200 Retained earnings

Answer 1

(a)

Prepare the journal entry that the parent makes to record the acquisition.

General Journal
Description	Debit	Credit
Equity Investment (84,000 shares × $45)	$3,780,000
Common stock (84,000 shares × $2)		$168,000
Additional paid in capital (84,000 shares × $43)		$3,612,000

_____________________________________________________________________

(b)

prepare the consolidation entries.

Consolidation Journal
	Description	Debit	Credit
[E]	Common stock	$432,000
	APIC	$477,500
	Retained Earnings	$1,660,500
	Equity Investment		$2,570,000
[A]	Trademark	$240,000
	Video library	$600,000
	Patented technology	$125,000
	Goodwill (b/f)	$245,000
	Equity Investment ($3780000 - $2570000)		$1,210,000

_______________________________________________________________________

(c)

. Prepare the consolidation spreadsheet.

Consolidation Worksheet
	Parent		Subsidiary			Debit		Credit	Consolidated
Assets:
Cash	$514,020		$265,160						$779,180
Accounts receivable	450,300		633,360						$1,083,660
Inventory	650,000		813,540						$1,463,540
Equity investment	3,780,000		-				[E]	$2,570,000	$1,210,000
							[A]	$1,210,000	($1,210,000)
PPE, net	10,600,000		2,255,140						12,855,140
Trademark					[A]	$240,000			$240,000
Video library					[A]	$600,000			$600,000
Patented technology					[A]	$125,000			$125,000
Goodwill	-		-		[A]	$245,000			$245,000
	$15,994,320		$3,967,200						$17,391,520
Liabilities and equity:
Accounts payable	$150,480		$177,800						$328,280
Accrued liabilities	$176,640		$309,400						$486,040
Long-term liabilities	$3,840,000		$910,000						$4,750,000
Common stock	$428,400		$432,000		[E]	$432,000			$428,400
APIC	$3,864,000		$477,500		[E]	$477,500			$3,864,000
Retained earnings	$7,534,800		$1,660,500		[E]	$1,660,500			$7,534,800
	$15,994,320		$3,967,200			$3,780,000		$3,780,000	$17,391,520