Question

Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, deferred tax liability) Assume that the parent company acquires its subsidiary by exchanging 118,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 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 PPE assets that are undervalued by $1 million, an unrecorded Customer List that the parent values at $200,000, and an unrecorded Brand Name asset valued at $500,000. And, finally, assume that the tax basis of the PPE assets is equal to their book values, and your tax rate is 35%. a. Prepare the journal entry that the parent makes to record the acquisition. General Journal Description Debit Credit Equity investment 3540000 Common stock 118000 APIC 3422000 b. Given the following acquisition-date balance sheets for the parent and its subsidiary, prepare the consolidation spreadsheet. Elimination Entries Balance Sheet Parent Subsidiary Dr Cr Consolidated Assets $ 887300 Cash Accounts receivable Inventory Equity investment $783,300 384,000 582,000 3,540,000 $104,000 696,000 894,000 1080000 1476000 [E] [A] Property, plant and equipment (PPE), net Customer list Brand name 14,899,600 1,654,000 [A] [A] [A] [A] $20,188,900 $3,348,000 ► $ $ Liabilities and stockholders' equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC Retained earnings [A] $188,100 $127,000 220,800 221,000 2,000,000 1,000,000 680,000 200,000 [E] 5,200,000 250,000 [E] 11,900,000 1,550,000 [E] $20,188,900 $3,348,000 $

Answer 1

Dare Debit 3,540,000 Credit Docount lite & Explanation Equity Investment (118,000 X30) Common stock (118,000x1) Paid in Capital (118,000 X 809) ( (Acquisition of shares 118,000 3,22,000 696,000 894,000 (b) Eliminated Entries coniol- Balana shoot Parent Subsidiary DA dlated Assets: Cash $ 783,300 $/04,000 $ 887300 Decount Recuvable 384,000 1080000 Inventory 582,000 1476,000 Equity Investment 3 540,000 000,000 2.88.000 Property, plants Equipment (rre) 14,899,600 4,654,000 112 1,000,000 17,553, 600 Customer list (12_200,000 200,000 Brand name 500,000 935,000 Good we'll $ 20,188,900 63,348,000 22.213.9.00 Liabilities and Stoucholder's Equity Account Payable $ 188,160 $ 127,000 315/oo Accured liabilities 220,800 221,000 441,800 Long term liabilité, 2,000,000 1,000,000 3,000,000 Deferred lax liability 594,000 595,000 common slock 680,000 200,000 (EZ 200,000 680,000 APLC 5,200,000 280,000 CEZ 250,000 5,200,000 19195,000 Retained Earnings 11,900,000 1,550,000 £7_15.000 $ 20,188,900 $3,348,000 $4,133,000 $4,135,000 $22,131900 (ni 500,000 [A]'35,000

Noles ou Goodwill = 1540, ovo +595,000-60002000-200,000 - 500,000 $435,000 31 Deferred Tax Liability - (1000,000 + 200.000 € 500,000) X3r/ 595,000