39. A parent company exchanges 12,000 shares of its $2 par value common stock, with a fair value of $9/share, for all of the shares owned by the subsidiary’s shareholders. On the acquisition date, the subsidiary reported $30,000 of contributed capital (i.e., common stock) and $45,000 of Retained Earnings. An examination of the subsidiary’s balance sheet revealed that book values were equal to fair values for all assets except for PPE (net), which has a book value of $40,000 and a fair value of $73,000.

a. Prepare the entry that the parent makes to record the investment.

b. Prepare the [E] and [A] consolidation entries.

40. A parent company acquires all of the outstanding common stock of its subsidiary for cash purchase price of $265,000. On the acquisition date, the subsidiary reported $60,000 for Common Stock and $45,000 for Retained Earnings. An examination of the subsidiary’s balance sheet revealed that book values were equal to fair values for all assets, except for an unrecorded patent, which the parent values at $95,000.

a. Prepare the entry that the parent makes to record the investment.

b. Prepare the [E] and [A] consolidation entries.