ACCY 410 Fall 2019 Homework Four (due 10/3/2019) Assume that the parent company acquires its subsidiary in a nontaxable transaction by exchanging 96,000 shares of its $5 par value common stock, with a fair value on the acquisition date of $42 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the fair value of each of the subsidiary's assets and liabilities equal's their respective book values except for PP&E assets that are undervalued by $760,000, an unrecorded Customer List with a fair value of $250,000, and an unrecorded Brand Name asset valued at $570,000. Finally, assume that the tax bases of the subsidiary's pre-acquisition identifiable net assets equal their book values. The parent company's effective tax rate is 36% Required: 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 subsidiary, prepare the consolidation spreadsheet. Parent Subsidiary Cash 939.960S 149760 460,800 1,002.240 1,200,000 1287,360 Accounts Receivable Inventory Equity Investment 4,032.000 Property, plant and equipment (net) 13.5e8.000 2381760 $20,200 760 $4.821,120 Accounts payable Accrued Liabities Long-Term Liabilises S 225,720 S 182,880 264.960 318,240 2400.000 1440,000 Common Stock 816,000 288.000 Additional paid-in capital Retained eamings 6,240,000 360,000 10254080 2232,000 s20,200 760 $4 821,120 ACCY 410 Fall 2019 Homework Four (due 10/3/2019) Assume that the parent company acquires its subsidiary in a nontaxable transaction by exchanging 96,000 shares of its $5 par value common stock, with a fair value on the acquisition date of $42 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the fair value of each of the subsidiary's assets and liabilities equal's their respective book values except for PP&E assets that are undervalued by $760,000, an unrecorded Customer List with a fair value of $250,000, and an unrecorded Brand Name asset valued at $570,000. Finally, assume that the tax bases of the subsidiary's pre-acquisition identifiable net assets equal their book values. The parent company's effective tax rate is 36% Required: 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 subsidiary, prepare the consolidation spreadsheet. Parent Subsidiary Cash 939.960S 149760 460,800 1,002.240 1,200,000 1287,360 Accounts Receivable Inventory Equity Investment 4,032.000 Property, plant and equipment (net) 13.5e8.000 2381760 $20,200 760 $4.821,120 Accounts payable Accrued Liabities Long-Term Liabilises S 225,720 S 182,880 264.960 318,240 2400.000 1440,000 Common Stock 816,000 288.000 Additional paid-in capital Retained eamings 6,240,000 360,000 10254080 2232,000 s20,200 760 $4 821,120
