Problem

On January 1,2012, Picante Corporation acquired 100 percent of the outstanding votidg stoc...

On January 1,2012, Picante Corporation acquired 100 percent of the outstanding votidg 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

Account Receivable

100,000

Long-term debt

930,000

Land

 700,000

Common stock

1,000,000

Wquipment

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-year remaining life).

26,000

..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 2012, it was apparent that the research project was a failure with no future economic benefits.

On December 31, 2013, 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 1/1/13

 $(3,000,000)

$(800,000)

Net Income

1,563,000

210,000

Dividends paid

200,000

25,000

Retained earnings 12/31/13

$(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

Goodwil

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 12/31/13

(4,363,000)

(985,000)

Total liabilities and equities

$(12,800,000)

$(3,185,000)

 a. Show how Picante derived its December 31, 2013, Investment in Salsa account balance.

b. Prepare a consolidated worksheet for Picante and Salsa as of December 31,2013.

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