On January 1, 2011, Pinnacle Corporation exchanged $3,200,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. Pinnacle plans to maintain Strata as a wholly owned subsidiary with separate legal status and accounting information systems.
At the acquisition date, Pinnacle prepared the following fair-value allocation schedule:
Fair value of Strata (consideration transferred) |
| $3,200,000 |
Carrying amount acquired |
| 2,600,000 |
Excess fair value |
| $ 600,000 |
to buildings (undervalued) | $ 300,000 |
|
to licensing agreements (overvalued) | (100,000) | 200,000 |
to goodwill (indefinite life) |
| $ 400,000 |
Immediately after closing the transaction, Pinnacle and Strata prepared the following post-acquisition balance sheets from their separate financial records.
| Pinnacle | Strata |
Cash | $ 433,000 | $ 122,000 |
Accounts receivable | 1,210,000 | 283,000 |
Inventory | 1,235,000 | 350,000 |
Investment in Strata | 3,200,000 | –0– |
Buildings (net) | 5,572,000 | 1,845,000 |
Licensing agreements | -0- | 3,000,000 |
Goodwill | 350,000 | –0– |
Total Assets | $ 12,000,000 | $ 5,600,000 |
Accounts payable | (300,000) | (375,000) |
Long-term debt | (2,700,000) | (2,625,000) |
Common stock | (3,000,000) | (1,000,000) |
APIC | –0– | (500,000) |
Retained earnings | (6,000,000) | (1,100,000) |
Total liabilities and equities | $(12,000,000) | $(5,600,000) |
Prepare a January 1, 2011, consolidated balance sheet for Pinnacle Corporation and its subsidiary Strata Corporation.
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