49. Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, contingent consideration, deferred tax liability) Assume that the parent company acquires its subsidiary by exchanging 120,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the out- standing 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 PPE assets that are undervalued by $1 million, an unrecorded Customer List that the parent values at $200,000, and an unrecorded Brand Name asset valued at $500,000. In addition, the purchase and sale agreement pro- vides for contingent consideration in the event that the subsidiary meets earnings targets. You feel that the fair value of that contingent consideration liability is $400,000 on the acquisition date. And, finally, assume that the tax basis of the PPE assets is equal to their book values, and your tax rate is 35%. a. Prepare the journal entry that the parent makes to record the acquisition. b. Given the following acquisition-date balance sheets for the parent and its subsidiary, prepare the consolidation spreadsheet (note: the parent's acquisition-date balance sheet includes the contingent consideration liability from part a, and that liability has been included in the Equity Investment account balance): Balance Sheet Parent Subsidiary Assets Cash... Accounts receivable.. Inventory Equity investment. Property, plant and equipment (PPE), net $ 104,000 696,000 894,000 783,300 384,000 582,000 4,000,000 14,499,600 $20,248,900 1,654,000 $3,348,000 Liabilities and stockholders' equity Accounts payable. Accrued liabilities. Long-term liabilities Common stock. APIC.. Retained earnings $ 188,100 220,800 2,000,000 680,000 5,200,000 11,960,000 $ 127,000 221,000 1,000,000 200,000 250,000 1,550,000 $3,348.000 $20,248,900