Question

On January 1, 2018 Casey Corporation exchanged $3.210,000 cash for 100 percent of the Union -- Corporation Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems 22 Al the acquisition date. Casey prepared the following fair value allocation schedule: Tair value of Kennedy (consideration transferred) Carrying out squired Ecoss a value to buildings undervalued) to licensing agreement overvalued) to goodwill indefinite life) $3,210,000 2.500.000 $ 510,000 $ 39,000 193,000) 200,000 410,000 Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate fnancial records Account Cash Accounts receivable Inventory Investment is Kennedy buildings (net) Licensing agreements Goodwill Total assets Mets payable Long-ter det Casey 400.000 1.620.000 1.490.000 3.210,000 5,992.500 Kennedy 166.500 295.000 126,500 2.500.000 3,440.000 249.500 $12.842.000 22,000) (3.670.000 $ 6,600,000 630,000) .570.000)

Answer 1

Solution:

Consolidate balance sheet for Casey corporation and its subsidiary Kennedy Corpotayion as on January1, 2018

	Casey corporation	Kennedy Corporation	Consolidation
Assets
cash	480,000	166,500	646,500
Accounts receivable	1,420,000	295,000	1,715,000
Inventory	1,490,000	126,500	1,616,500
Investment in Kennedy	3,210,000	0	0
Buildings(net)	5,992,500	2,580,000	8,965,500
Licensing agreemnets	0	3,440,000	3,247,000
Good will	249,500	0	659,500
Total assets	12,842,000	6,608,000	16,850,000
Liabilities and stock holder's equity
Liabilities:
Accounts payable	(372,000)	(438,000)	(810,000)
Long term debt	(3,470,000)	(3,570,000)	(7,040,000)
Total liabilities	(3,842,000)	(4,008,00)	(7,850,000)
Stockholder's equity
Cmmon stock	(3,000,000)	(1,000,000)	(3,000,000)
Additional paid in capital	0	(500,000)	0
Retained earnings	(6,000,000)	(1,100,000)	(6,000,000)
total stockholder's equity	(9,000,000)	(2,600,000)	(11,600,000)
Total liabilities and equities	(12,842,000)	(6,608,000)	(16,850,000)

Working Note

1.Consolidated balance for corporation C's investment in Corporation k will be zero.

2.Consolidated balance for buliding (net)=5,992,500+2,580,000+393,000 = 8,965,500

3.Consolidated balance for Licensing agreements=(0+3,440,000)-193,000 =3,247,000

4. Consolidated balance for Goodwill= (249,500+410,000)= 659,500

5.Remaing item have been obtained by simply adding the balance of these item for the two companies.