Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries Assume that the parent company acquires its subsidiary by exchanging 84,000 shares of its $2 par value Common Stock, with a fair value on the acquisition date of $41 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiarys assets and liabilities at an amount equaling their book values except for an unrecorded Trademark with a fair value of $240,000, an unrecorded Video Library valued at $600,000, and Patented Technology with a fair value of $125,000.

a. Prepare the journal entry that the parent makes to record the acquisition.

General Journal
Description	Debit	Credit
Equity investmentAPICCashRetained earningsGoodwill
Common stock
Equity investmentAPICCashRetained earningsGoodwill

b. Given the following acquisition-date balance sheets of the parent and the subsidiary, prepare the consolidation entries.

Balance Sheet						Parent		Subsidiary
Assets
Cash						$514,020		$265,160
Accounts receivable						450,300		633,360
Inventory						650,000		813,540
Equity investment						3,444,000		-
Property, plant & equipment						10,600,000		1,805,140
						$15,658,320		$3,517,200
Liabilities and stockholders' equity
Accounts payable						$150,480		$177,800
Accrued liabilities						176,640		309,400
Long-term liabilities						3,840,000		910,000
Common stock						428,400		282,000
APIC						3,528,000		327,500
Retained earnings						7,534,800		1,510,500
						$15,658,320		$3,517,200

Consolidation Journal
	Description	Debit	Credit
[E]	Common stock
	APIC
	Equity investmentAPICCashRetained earningsGoodwill
	Equity investmentAPICCashRetained earningsGoodwill
[A]	Trademark
	Video library
	Patented technology
	Equity investmentAPICCashRetained earningsGoodwill
	Equity investmentAPICCashRetained earningsGoodwill

c. Prepare the consolidation spreadsheet.

Consolidation Worksheet
			Parent		Subsidiary			Debit			Credit			Consolidated
Assets
Cash			$514,020		$265,160
Accounts receivable			450,300		633,360
Inventory			650,000		813,540
Equity investment			3,444,000		-					[E]
										[A]
PPE, net			10,600,000		1,805,140
Trademark							[A]
Video library							[A]
Patented technology							[A]
Goodwill			-		-		[A]
			$15,658,320		$3,517,200
Liabilities and equity
Accounts payable			$150,480		$177,800
Accrued liabilities			$176,640		$309,400
Long-term liabilities			$3,840,000		$910,000
Common stock			$428,400		$282,000		[E]
APIC			$3,528,000		$327,500		[E]
Retained earnings			$7,534,800		$1,510,500		[E]				-
			$15,658,320		$3,517,200

d. Where were the intangible assets on the parent or subsidiarys balance sheets?

A. On the parent's balance sheet embedded in the equity investment account. On the subsidiary's balance sheet, each intangible asset is listed.

B. On the parent's balance sheet embedded in the equity investment account. After the consolidation process is complete, each intangible asset is listed on the consolidated balance sheet.

C. On the subsidiary's balance sheet embedded in retained earnings. After the consolidation process is complete, each intangible asset is listed on the consolidated balance sheet.