Question

1 19% 15:38 (50 points) For a $10.5 million cash and stock payment, Preston Company acquired a 55% controlling equity interest in the common voting stock of Scalibrini, Inc. The acquisition was completed on 1/1/20x0. At the time of the acquisition, the book value of Scalibrini's net assets was $16,970,000 Preston acquired Scalibrini with a cash payment of $3 million and by issuing 500,000 shares of their own $1 par value common stock, which at the acquisition date had a market value of $14.90/share. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the net book value of the acquired assets is assigned to goodwill. At 1/1/20x0, Scalibrini, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Remaining Value Useful Life Book Value S1.700,000$2.550,000 Buildings 2.700,000 3,400,000 Equipmend 3,700,000 3,300,000 Fair Land 7 years S years Preston Company uses the equity method to account for the acquisition of Scalibrini, Inc. Required: A. Prepare a schedule showing the allocation of the purchase price to the net asset acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. B. Prepare the journal entry to record Preston Company's investment in Scalibrini, Inc. @1/1/20x0. C. Prepare a schedule reconciling Preston Company's Investment in Scalibrini, Inc. account from the acquisition date, i.e, 1/1/20x0, to 12/31/20x0. D. On the next page, I've posted Preston Company and Scalibrini, Inc.'s account balances as of December 31, 20x0. Using those account balances, 1. Prepare the worksheet adjusting entries as of December 31, 20x0 to consolidate Preston Company and Scalibrini, Inc. 2. Using the given information and an excel worksheet, prepare the worksheet to consolidate Preston Company and Scalibrini, Inc. E. For information purposes, the Controller of Preston Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity, i.e. between Preston and Scalibrini, transfer of a depreciable asset.

Answer 1

PURCHASE PRICE ALLOCATION Fair value of consideration 30,00,000 Cash 74,50,000 1,04,50,000 Stock 93,33,500 Share in the book value of net assets acquired (16970000*55%) 11,16,500 Total differential Recognition of an intangible asset Fair value adjustment (1150000*55%) Total asset recognition & fair value adjustment Goodwill (1116500-632500) 6,32,500 6,32,500 4,84,000 Increase in Book value Fair value Particulars FV 17,00,000 25,50,000 8,50,000 Land Useful Annual amortisations 27,00,000 life 34,00,000 7,00,000 Buildings 87,00,000 33,00,000 -4,00,000 Equipment Net impact 11,50,000 1,00,000 -80,000 20,000

Journal entry Investment in Preston Company 1,04,50,000 Cash 30,00,000 5,00,000 Common stock Additional paid-in capital (Recording of investment) 69,50,000 Schedule reconciling Preston Co.'s investment in Scalibrini Inc. Original cost of investment hare in net income (7950000*55% ) Share in dividend income (3000000 55 %) Share in incremental depreciation (20000 55%) nvestment as on 31/12/20x0 1,04,50,000 43,72,500 -16,50,000 -11,000 1,31,61,500