Question

Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 82,500 shares of its Common Stock, with a market value on the acquisition date of $40 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 a building that it feels is undervalued by $750,000, an unrecorded License Agreement that the parent values at $375,000, and an unrecorded Customer List owned by the subsidiary that the parent values at $150,000. Any further discrepancy between the purchase price and the book value of the subsidiary's Stockholders' Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition. a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts will each of the following be reported on the consolidated balance sheet? Parent Subsidiary Balance Sheet Assets Cash $1,365,750 $302,400 576,000 Accounts receivable 626,400 Inventory 804,600 873,000 Equity investment 3,300,000 Property, plant and equipment (PPE), net 1,488,600 4,199,400 $10,314,150 $3,222,000 Liabilities and stockholders' equity Accounts payable $282,150 $190,500 Accrued liabilities 331,200 331,500 900,000 Long-term liabilities 1,500,000 Common stock 330,000 180,00 APIC 5,610,000 225.000 Retained earnings 2,260,800 1,395,000 $10,314,150 $3,222,000 1. Accounts Receivable $ 2. Equity Investment 3. PPE, net $4 4. Goodwill 5. Common Stock 2$ 6. APIC 7. Retained Earnings $4

Answer 1

Explanation $12,02,400.00 =$576,000 + $626,400 1 Accounts receivable 2 Equity investment 3 PPE 4 Good will 5 Common stock 6 APIC 7 Retained earnings $64,38,000.00 =$4,199,400 + $1,488,600 + $750,000 $ 7,25,000.00 Note 1 $ 3,30,000.00 $56,10,000.00 $22,60,800.00 $ 33,00,000 Note 1 Fair Value of consideration (82,500 x $40) Assets: $ 32,22,000 $ 2,50,000 $ 3,75,000 $ 1,50,000 Total Assets (A) $ 39,97,000 Liabilities: $ 1,90,500 $ 3,31,500 $ 9,00,000 Total Liabilities (B) $ 14,22,000 | Less: Net Assets (C) = (A) - (B) | Good will $ $ 25,75,000 7,25,000