Question

4 On January 1, 2020, Parent Corporation acquired all of the outstanding common 5 stock of Sub Company for $4,590 cash. 6 7 The balance sheets of Parent and Sub, immediately prior to the combination, are 8 shown below: 9 10 Balance Sheets Parent 11 Assets Sub 12 Cash and receivables $ 5,148 $ 13 1,296 Inventory 3,060 1,620 Long-term investments 0 540 15 Land 1,170 315 16 Buildings and equipment, net 4,320 1,080 17 Total assets $ 13,698 $ 4,851 18 19 Liabilities and Stockholders' Equity 20 Current liabilities $ 2,700 $ 1,800 21 Long-term debt 3,600 720 22 Common stock, par value 900 180 23 Additional paid-in capital 2,160 630 24 Retained earnings 4,338 1,521 25 Total liabilities and equity $ 13,698 $ 4,851 26 27 Several of Sub's assets and liabilities had fair values that were different 28 from their book values. Estimates of the fair values of these items follow: 29 30 Inventory $ 1,440 31 Long-term investments 450 32 Land 756 33 Buildings and equipment, net 1,620 700 34 Long-term debt 35 36 In addition, Sub had previously unrecorded identifiable intangible assets 37 valued at $198. 38 39 Required: 40 41 (a) Calculate goodwill or gain on acquisition. 42 43 (b) Prepare a working paper to consolidate the balance sheets of Parent and Sub at January 1, 2020 (complete the consolidation worksheet on pg2). 45 Don't forget to record the acquisition in the accounts of Parent on the consolidation worksheet.

Answer 1

Calculation of Goodwill
Particulars	Amounts in $
Non Current Assets
Land	756
Building & Equipment	1,620
Long Term Investments	450
Unrecognised Intangible asset	198
Current Assets
Cash & Receivables	1,296
Inventory	1,440
Total Assets	5,760
Non Current Liabilities
Long Term Debt	700
Current Liabilities	1,800
Total Liabilities	2,500
Net Assets	3,260
Purchase Consideration	4,590
Goodwill Paid	1,330