FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Assume that the parent company acquires its subsidiary by exchanging 80,000 shares of its Common Stock, with a fair value on the acquisition date of $24 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 is undervalued by $400,000, an unrecorded License Agreement with a fair value of $200,000, and an unrecorded Customer List owned by the subsidiary with a fair value of $100,000. Any further discrepancy between the purchase price and the book value of the subsidiary’s
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 |
|---|---|---|
| Assets | ||
| Cash | $700,000 | $200,000 |
| 300,000 | 400,000 | |
| Inventory | 450,000 | 500,000 |
| Equity investment | 1,920,000 | |
| Property, plant and equipment (PPE), net | 1,500,000 | 900,000 |
| $4,870,000 | $2,000,000 | |
| Liabilities and stockholders’ equity | ||
| Accounts payable | $150,000 | $100,000 |
| Accrued liabilities | 180,000 | 200,000 |
| Long-term liabilities | 1,000,000 | 550,000 |
| Common stock | 140,000 | 100,000 |
| APIC | 2,000,000 | 150,000 |
| 1,400,000 | 900,000 | |
| $4,870,000 | $2,000,000 |
| 1. | Accounts Receivable | Answer
|
| 2. | Equity Investment | Answer
|
| 3. | PPE, net | Answer
|
| 4. | Answer
|
|
| 5. | Common Stock | Answer
|
| 6. | APIC | Answer
|
| 7. | Retained Earnings | Answer
|
b. What intangible assets will be reported on the consolidated balance sheet and at what amounts?
| License Agreement | Answer
|
| Customer List | Answer
|
| Goodwill | Answer
|
I need help walking through and figuring out each step on this question. Could someone give me a walkthrough of how you came up with each "Answer"?
Expert Solution
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Step 1
a). Amounts will be reported on the consolidated balance sheet
|
1 |
Accounts Receivable | ($3,00,000+$4,00,000) = | $7,00,000 |
| 2 | Equity Investment | $0 | |
| 3 | PPE, net | ($1,500,000+$9,00,000+$4,00,000(Account receivable)) = | $2,800,000 |
| 4 | Good will | [$1,920,000-($1,00,000+$1,50,000+$9,00,000)-($2,00,000(License Agreement)+$1,00,000(Customer List)+$4,00,000(Account receivable))] | $70,000 |
| 5 | Common stock | (Given) | $1,40,000 |
| 6 | APIC | (Given) | $2,000,000 |
| 7 | Retained earnings | $4,870,000 | |
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- The PTCL Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is: Fair value of assets acquired $2,640,000 Fair value of liabilities acquired $720,000 Total shareholders’ equity of the subsidiary company $800,000 Retained earnings of the subsidiary company $1,120,000 Required: (a) Pass the necessary journal entry to record the acquisition (b) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition (c) Pass the necessary consolidation entry to eliminate the subsidiary by the parent company (d) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50.Thanksarrow_forwardOn July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $792,400 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $339,600 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $125,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2021. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly. Truman Atlanta Revenues $ (768,485 ) $ (536,000 ) Operating expenses 418,000 378,000 Income of subsidiary (46,515 ) 0 Net income $ (397,000 ) $ (158,000 ) Retained earnings, 1/1/21 $…arrow_forwardPushdown Accounting Assume a parent company acquires its subsidiary by paying $1,700,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Parent Parent Subsidiary Assets: Cash & receivables $ 800,000 $ 350,000 Inventory 600,000 200,000 Property & equipment, net 2,300,000 1,025,000 Equity investment 1,700,000 Licenses - 275,000 $ 5,400,000 $ 1,850,000 Liabilities and stockholders' equity: Current liabilities $ 400,000 $ 400,000 Other liabilities 300,000 - Note payable - 600,000 Common stock 1,670,000…arrow_forward
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