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 $25,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $10,000 in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Cash Receivables Inventory Land Buildings (net) Equipment (net) Accounts payable Long-term liabilities Common stock-$1 par value Common stock-$20 par value Additional paid-in capital Retained earnings, 1/1/18 Marshall Company Book Value $ 71,700 290,000 432,000 285,000 475,000 174,000 (229,000) (517,000) (110,000) Tucker Company Book Value $ 39,800 150,000 225,000 240,000 252,000 64,800 (58,500) (318,000) (120,000) (360,000) (511,700) (475, 100) 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 $8,350, Land by $25,000, and Buildings by $41,000. Marshall plans to maintain Tucker's separate legal identity and to operate Tucker as a wholly owned subsidiary. a. Determine the 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. b. To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

Answer 1

Calculation of Investment in Tucker Account and Gain/(loss) if any on acquisiton Fair Value of Tucker Account Account Cash Receivable Inventory Land Buildings (net) Equipment (net) Accounts payable long term liabilities Total Adjustment Book Value Undervalued/(Overvalued) 39,800 150,000 225,000 8,350 240,000 25,000 252,000 41,000 64,800 (58,500) (318,000) 595,100 Fair Value 39,800 150,000 233,350 265,000 293,000 64,800 (58,500) (318,000) 669,450 669,450 Investment in Tucker (Fair Value of assets acquired) Consideration transferred by Marshall company: Issued Long term liabilities Issue of common stock (20,000 10) Consideration transferred by Marshall company 318,000 200,000 518,000 Gain/(loss) on acquisition of Tucker (669,450 - 518,000) 151,450

Requried A. Cash Receivable Inventory Land Buildings (net) Equipment (net) Total Assets Consolidated Totals 76,500 440,000 665,350 550,000 768,000 238,800 2,738,650 Accounts payable Long term liabilities Common stock Additional paid in-capital Retained earnings Total liabilities and equities 287,500 1,153,000 130,000 530,000 638,150 2,738,650

b) MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY Worksheet January 1, 2018 Consolidation Entries Credit Debit Accounts Cash Receivables Inventory Land Buildings (net) Equipment (net) Investment in Tucker Total Assets Marshall Company 36,700 290,000 432,000 285,000 475,000 174,000 669,450 2,362,150 Tucker Company 39,800 150,000 225,000 [a] 240,000 [a] 252,000 [a] 64,800 Consolidated Totals 76,500 440,000 665,350 550,000 768,000 238,800 8,350 25,000 41,000 669,450 [a + e] 971,600 2,738,650 (58,500) (318,000)| (120,000) [e] 120,000 Accounts Payable Long-term liabilities Common stock Additional paid in capital Retained Earnings 1/1/18 Total liabilities and owners equities (229,000) (835,000) (130,000) (530,000) (638,150) (2,362,150) (287,500) (1,153,000) (130,000) (530,000) (638,150) (2,738,650) (475,100) [e] (971,600) 475,100 669,450 669,450 Working Notes Entries Explanation: [e] Is to eliminate the stockholders' equity of Tucker limited [a] Is to record the undervalued amount of the assets acquried

Post Acquisition Balance of Marshal company 1) Cash Balance Marshal's cash balance pre acquisition less: Professional fees paid less: Stock issuance cost Marshal's cash balance post acquisition 71,700 (25,000) (10,000) 36,700 2) Common stock Marshal Common Stock pre acquisiton Add: Stock issue to Tucker (20,000 ) Marshal Common Stock post acquisiton 110,000 20,000 130,000 3) Additional Paid in capital Marshal Additional paid in capital pre acquisiton Add: Stock issue to Tucker (20,000 x 9) Less: Stock issuance cost Marshal Additional paid in capital post acquisiton 360,000 180,000 (10,000) 530,000 4) Long term liabilities Marshal long term liabilities pre acquisiton Add: Long term liabilities issued to Tucker Marshal long term liabilities post acquisiton 517,000 318,000 835,000 5) Retained Earnings Marshal Retained Earnings pre acquisition Add: Gain on Acquisition of Tucker less: Professional fees paid Marshal Retained Earnings post acquisition 511,700 151,450 (25,000) 638,150