On January 1, 2010, Picante Corporation acquired 100 percent of the outstanding voting stock of Salsa Corporation for $1,765,000 cash. On the acquisition date, Salsa had the following balance sheet:
Cash | $ 14,000 | Accounts payable | $ 120,000 |
Accounts receivable | 100,000 | Long-term debt | 930,000 |
Land | 700,000 | Common stock | 1,000,000 |
Equipment (net) | 1,886,000 | Retained earnings | 650,000 |
| $2,700,000 |
| $2,700,000 |
At the acquisition date, the following allocation was prepared:
Fair value of consideration transferred |
| $1,765,000 |
Book value acquired |
| 1,650,000 |
Excess fair value over book value |
| 115,000 |
To in-process research and development | $44,000 |
|
To equipment (8-yr. remaining life) | 56,000 | 100,000 |
To goodwill (indefinite life) |
| $ 15,000 |
Although at acquisition date Picante had expected $44,000 in future benefits from Salsa’s in-process research and development project, by the end of 2010, it was apparent that the research project was a failure with no future economic benefits.
On December 31, 2011, Picante and Salsa submitted the following trial balances for consolidation:
| Picante | Salsa |
Sales | $ (3,500,000) | $(1,000,000) |
Cost of goods sold | 1,600,000 | 630,000 |
Depreciation expense | 540,000 | 160,000 |
Subsidiary income | (203,000) | –0– |
Net income | $ (1,563,000) | $ (210,000) |
Retained earnings 1/1/11 | $ (3,000,000) | $ (800,000) |
Net income | (1,563,000) | (210,000) |
Dividends paid | 200,000 | 25,000 |
Retained earnings 12/31/11 | $ (4,363,000) | $ (985,000) |
Cash | $ 228,000 | $ 50,000 |
Accounts receivable | 840,000 | 155,000 |
Inventory | 900,000 | 580,000 |
Investment in Salsa | 2,042,000 | –0– |
Land | 3,500,000 | 700,000 |
Equipment (net) | 5,000,000 | 1,700,000 |
Goodwill | 290,000 | –0– |
Total assets | $ 12,800,000 | $ 3,185,000 |
Accounts payable | $ (193,000) | $ (400,000) |
Long-term debt | (3,094,000) | (800,000) |
Common stock | (5,150,000) | (1,000,000) |
Retained earnings 12/31/11 | (4,363,000) | (985,000) |
Total liabilities and equities | $(12,800,000) | $(3,185,000) |
a. Show how Picante derived its December 31, 2011, Investment in Salsa account balance.
b. Prepare a consolidated worksheet for Picante and Salsa as of December 31, 2011.
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