Question
Case 2.2 On January 1, 2017, North Corp. acquired all of the outstanding common stock of South Inc. by issuing shares of its own stock.
Case 2.2
On January 1, 2017, North Corp. acquired all of the outstanding common stock of South Inc. by issuing shares of its own stock. South's book value was $100,000 at the time. North issued 12,000 shares having a par value of $1 per share and a fair value of $30 per share. At the time of the acquisition, North found that the buildings (5 years remaining useful life) were undervalued on South's books by $50,000. At the same time, equipment (10 years remaining useful life) was undervalued by $30,000.
Following are the individual financial records for these two companies for the year ended December 31, 2020.
31-Dec-20
North
South
Revenues
(372,000)
(200,000)
Expenses
264,000
152,000
Equity in investee earnings
(35,000)
-
Net Income
(143,000)
(48,000)
Retained earnings, January 1, 2020
(765,000)
(102,000)
Net income (above)
(143,000)
(48,000)
Dividends paid
64,000
20,000
Retained earnings, December 31, 2020
(844,000)
(130,000)
Current assets
100,000
22,000
Investment in South Inc.
410,000
-
Buildings (net)
525,000
89,000
Equipment (net)
370,250
200,000
Total Assets
1,405,250
311,000
Liabilities
(151,250)
(109,000)
Common Stock
(360,000)
(72,000)
APIC
(50,000)
-
Retained Earnings, December 31, 2020 (above)
(844,000)
(130,000)
Total Liabilities and SE
(1,405,250)
(311,000)
Required:
Prepare a consolidation worksheet for this business combination (10 points).
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