46. Assume that the parent company acquires its subsidiary by exchanging 103,000 shares of its Common Stock, with a fair value on the acquisition date of $26 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 subsidiarys assets and liabilities at an amount equaling their book values except for an unrecorded Patent owned by the subsidiary with a fair value of $290,000. Any further discrepancy between the purchase price and the book value of the subsidiarys Stockholders Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition.

a. What is the total fair value of the subsidiary on the acquisition date?

b. Prepare the consolidation entry or entries on the date of acquisition given the following balance sheets of the parent and subsidiary on the date of acquisition.

Balance Sheet Parent Subsidiary

Assets

Cash ....................................................... 4,600,000 339,000

Accounts receivable........................................... 1,900,000 522,000

Inventory ................................................... 2,900,000 670,500

Equity investment............................................. 2,678,000

Property, plant and equipment (PPE), net.............. 14,000,000 1,240,500

$26,078,000 $2,772,000

Liabilities and stockholders equity

Accounts payable............................................. 968,000 190,500

Accrued liabilities ............................................. 1,150,000 331,500

Long-term liabilities ........................................... 4,460,000 750,000

Common stock............................................... 3,600,000 150,000

APIC ....................................................... 400,000 187,500

Retained earnings............................................ 7,500,000 1,162,500

$26,078,000 $2,772,000

c. Prepare the consolidated balance sheet on the date of acquisition.

d. What additional assets have been recognized on the consolidated balance sheet that were not explicitly reported on the balance sheets of either the parent or the subsidiary? Where were they?

47. Assume that the parent company acquires its subsidiary by exchanging 75,400 shares of its Common Stock, with a fair value on the acquisition date of $30 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 subsidiarys assets and liabilities at an amount equaling their book values except for a building that is undervalued by $480,000, an unrecorded License Agreement with a fair value of $230,000, and an unrecorded Customer List owned by the subsidiary with a fair value of $120,000. Any further discrepancy between the purchase price and the book value of the subsidiarys Stockholders Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition.

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?

1. Accounts Receivable

2. Equity Investment

3. PPE, net

4. Goodwill

5. Common Stock

6. APIC

7. Retained Earnings

Balance Sheet Parent Subsidiary

Assets

Cash........................................................ 728,400 181,440

Accounts receivable............................................ 307,200 375,840

Inventory .................................................... 465,600 482,760

Equity investment.............................................. 2,262,000

Property, plant and equipment (PPE), net ................ 2,000,000 893,160

$5,763,200 $1,933,200

Liabilities and stockholders equity

Accounts payable.............................................. 150,480 114,300

Accrued liabilities .............................................. 176,640 198,900

Long-term liabilities............................................ 1,062,320 540,000

Common stock................................................ 176,000 108,000

APIC........................................................ 2,992,000 135,000

Retained earnings ............................................. 1,205,760 837,000

$5,763,200 $1,933,200

b. What intangible assets will be reported on the consolidated balance sheet and at what amounts? Where were these assets on the parent or subsidiarys balance sheets?