Acquisition and Eliminating Entries

Potluck Corp. acquired all of the stock of Sauers Corp. on June $30,2022,$ in an acquisition reported as a stock acquisition. Sauers$$ trial balance at the date of acquisition, along with the fair values of its assets and liabilities, are:

Book Value Dr $($Cr$)$ Fair Value Dr $($Cr$)$

Tangible assets $$42,000,000$ $$17,500,000$

Intangible assets $10,500,00063,000,000$

Liabilities $(39,200,000)(38,500,000)$

Capital stock $(7,000,000)$

Retained earnings $(6,230,000)$

Accumulated other comprehensive income $(70,000)$

Total $$0$

Potluck pays $$63$ million in cash and issues $1,050,000$ shares of stock to the former owners of Sauers. Potluck$$s stock has a par value of $$0\mathrm{.}01/$share$.$ The market price of the shares at the date of acquisition, $$25/$share$,$ is used to value the shares issued. Registration fees for the stock are $$350,000$ and legal and consulting fees connected with the acquisition are $$420,000,$ both paid in cash.

Required

Note: Enter all zeros with your numerical answers, do not abbreviate your answers in thousands or in millions.

a$.$ Prepare the journal entry Potluck made to record the stock acquisition on its own books on June $30,2022.$

Debit Credit

Investment in Sauers Corp.

$63,000,000$

$0$

Answer

Common stock

$10,500$

$0$

Answer

Additional Paid$-$in Capital

$0$

$0$

Answer

$0$

$0$

Answer

Intangible assets

$0$

$0$

Answer

To record the acquisition

b$.$ Prepare working paper eliminating entries $($E$)$ and $($R$)$ to combine the accounts of Potluck and Sauers at June $30,2022.$

Debit Credit

$($E$)$

Capital stock

$0$

$700,000$

Answer

Retained earnings

$0$

$0$

Answer

$0$

$0$

Answer

Additional Paid$-$in Capital

$0$

$0$

Answer

To eliminate Sauer's equity accounts against the investment account

$($R$)$

Tangible assets

$0$

$0$

Answer

$0$

$0$

Answer

$0$

$0$

Answer

Liabilities

$0$

$0$

Answer

Intangible assets

$0$

$0$

Answer

To revalue Sauer's assets and liabilities to fair value