In October, 2010, the Coca-Cola Company owned 33 percent of the North American business of Coca-Cola Enterprises (CCE). That year, Coca-Cola acquired the other 67 percent of CCE's North American business. Acquisition cost of full ownership of CCE's North American business was the 33 percent interest previously held, plus cash consideration and replacement share-based compensation awarded to certain employees of CCE. Note 2 of Coca-Cola's annual report states that! it re-measured its investment to its $5,373 million fair value at the date of acquisition, recognizing a gain of $4,978 million as other income on the 2010 consolidated income statement. Coca-Cola paid CCE's owners $1,321 million in cash and $235 million in share-based payment awards to CCE employees. The share-based payments of $154 million associated with services performed prior to the acquisition were included in the acquisition cost. The remaining $81 million will be expensed over future periods. Allocation of the purchase price is as follows (in millions):
Current assets................................................................ $2,690
Property, plant and equipment, net ......................................... 5,385
Bottlers' franchise rights ..................................................... 6,393
Liabilities .................................................................. (15,366)
Net identifiable assets assumed ............................................. (898)
Goodwill ...................................................................... 7,746
Acquisition cost ............................................................ $6,848
Required
a. Why did Coca-Cola remeasure its 33 percent interest in CCE's North American business to fair value at the date of acquisition? How did Coca-Cola account for its investment previously?
b. Total share-based payment awards connected with the acquisition were valued at $235 million. Why were $154 million of the share-based payment awards included in acquisition cost?
c. Assume the acquisition was a statutory merger, and the net assets of CCE's North American business were recorded directly on Coca-Cola's books. Prepare the entry or entries Coca-Cola made on its own books to record the acquisition of CCE's North American net assets.
d. Now assume the acquisition was a stock investment, and CCE's North American business remains a separate entity with separate books.
1. Prepare the entries Coca-Cola made on its own books to record the acquisition.
2. Assume the book value of current assets acquired was $2,000 million, the book value of property, plant and equipment acquired was $20,000 million, the franchise rights were previously unrecorded, and the book value of acquired liabilities approximated fair value. Prepare the consolidation eliminating entries necessary to consolidate Coca-Cola with CCE's North American business at the date of acquisition.