Case 1 - Advanced Accounting

Part I Consolidation Accounting

Facts: Assume that on January 1, Parent Company (Parent Co) acquires 100% of the common stock of Subsidiary Company (Sub Co) for $700,000. On the acquisition date, Sub Co reports a book value of Stockholders Equity of $220,000. Parent Co is willing to pay the purchase price because the subsidiary owns a customer list that has a fair value equal to $50,000. In addition, Sub Co owns property, plant and equipment that are worth $150,000 more than the amount at which they are reported on Sub Cos books. Both of these identifiable assets are depreciated or amortized over a 20 year period with no salvage value (and assume no tax effect, so no adjustment to income taxes). Any remaining excess purchase price is attributed to corporate synergies that Parent Co expects to realize following the combination of the two companies. Parent Co and Sub Cos financial statements at the end of the first year following the acquisition are detailed in the Excel file Case 1 - Advanced accounting topics.

Required: Using the Excel file Case 1 - Advanced accounting topics, prepare the consolidating journal entries and the consolidated financial statements at the end of the first year following the acquisition.

Required: please prepare the consolidating journal entries

D E Sub Co 480,000 288,050 191,950 106,950 85,000 0 85,000 17,850 67,150 148,000 67,150 (10,080) 205,070 A B C. 1 Consolidation Accounting 2 3 Parent Co 4 Income Statement 5 Sales 5,700,000 6 Cost of goods sold 3,990,000 7 Gross profit 1,710,000 8 Operating expenses 903,800 9 Income from operations 806, 200 10 Equity income 67,150 11 Income before income tax 873,350 12 Income tax 179,200 13 Net income 694, 150 14 15 Statement of Retained Earnings 16 Beginning retained earnings 2,863,680 17 Net income 694, 150 18 Dividends (134, 840) 19 Ending retained earnings 3,422,990 20 21 Balance Sheet 22 Assets 23 Cash 454,870 24 Accounts receivable 729,600 25 Inventory 1,105,800 26 Total current assets 2,290,270 27 Property, plant and equipment, net 5,319,240 28 Investment in subsidiary 757,070 29 Total assets 8,366,580 30 Liabilities & Stockholders' Equity 31 Other liabilities 819,090 32 Total current liabilities 819,090 33 Notes payable 2,500,000 34 Common stock 931,950 35 Retained earnings 3,422,990 36 Additional paid in capital 692,550 37 Total stockholders' equity 5,047,490 38 Total liab & stockholders' eq 8,366,580 39 40 41 42 129,390 111,360 143,040 383,790 164,640 0 548,430 111,360 111,360 160,000 32,000 205,070 40,000 277,070 548,430