Winter Company acquired 75% interest in Summer Company for $10,000 in cash. The condensed balance sheets...
Winter Company acquired 75% interest in Summer Company for $10,000 in cash. The condensed balance sheets immediately prior to the acquisition are below:
| Winter Company | Summer | Company | |
| Book Value | Book Value | Fair Value | |
| Cash and receivables | 11,000 | 2,000 | 1,600 |
| Inventories | 7,000 | 3,000 | 2,200 |
| Plant assets, net | 12,000 | 5,000 | 3,000 |
| Patents | 2,000 | 1,000 | 2,000 |
| Total assets | 32,000 | 11,000 | |
| Current liabilities | 6,000 | 2,500 | 2,500 |
| Noncurrent liabilities | 8,000 | 5,000 | 5,000 |
| Common stock | 5,000 | 500 | |
| Retained Earnings | 13,000 | 3,000 | |
| Total liabilities and shareholders' equity | 32,000 | 11,000 | |
Additional information:
1. In addition to the above cash cost, out-of-pocket-merger-related costs of $400 were paid in cash
2. The acquisition agreement includes an earnings contingency agreement to be settled in cash; its value is $1,000
3. It is determined that Summer has an unreported preacquisition contingency related to a pending lawsuit, consisting of a liability with an estimated present value of $500
4. In-process research and developed owned by Summer is worth $2,000
5. The fair value of the 25% noncontrolling interest in Summer Company is $2,400
Required:
A. Set up a table starting with acquisition cost and determine goodwill as acquisition
B. Prepare the acquisition journal entry made by Winter Company
C. Prepare the working paper eliminating entries to consolidate the trial balance of Winter and Summer at date of acquisition
Only need to prepare the acquisition eliminating entries necessary to consolidate the balance sheet of the E and R entries. Make sure you provide how you calculated the (R) elimination of Investment in Summer and the Noncontrolling interest in Summer
Here is an example of what the (e) and (r) entries should look like
(e)
| Capital stock | 2,500,000 | |
| Retained earnings | 7,400,000 | |
| Accumulated other comprehensive income | 100,000 | |
| Investment in Gold Road (80%) | 8,000,000 | |
| Noncontrolling interest in Gold Road (20%) | 2,000,000 |
(r)
| Customer list | 5,000,000 | |
| Goodwill | 36,000,000 | |
| Investment in Gold Road | 34,600,000 | |
| Noncontrolling interest in Gold road | 6,400 000 |
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