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).