Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries Assume that the parent company acquires its subsidiary by exchanging 50,000 shares of its $1 par value Common Stock, with a fair value on the acquisition date of $30 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 $120,000, an unrecorded Video Library valued at $300,000, and Patented Technology with a fair value of $60,000.

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

General Journal
Description	Debit	Credit
AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
Common stock	Answer	Answer
AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer

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

Balance Sheet						Parent		Subsidiary
Assets
Cash						$250,020		$120,000
Accounts receivable						200,000		300,000
Inventory						300,000		400,000
Equity investment						1,500,000		-
Property, plant & equipment						4,000,000		800,000
						$6,250,000		$1,620,000
Liabilities and stockholders' equity
Accounts payable						$200,000		$80,000
Accrued liabilities						250,000		140,000
Long-term liabilities						1,800,000		500,000
Common stock						400,000		100,000
APIC						2,600,000		200,000
Retained earnings						1,000,000		600,000
						$6,250,000		$1,620,000

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

c. Prepare the consolidation spreadsheet.

Consolidation Worksheet
			Parent		Subsidiary			Debit			Credit			Consolidated
Assets
Cash			$250,000		$120,000									Answer
Accounts receivable			200,000		300,000									Answer
Inventory			300,000		400,000									Answer
Equity investment			1,500,000		-					[E]	Answer			Answer
										[A]	Answer
PPE, net			4,000,000		800,000									Answer
Trademark							[A]	Answer						Answer
Video library							[A]	Answer						Answer
Patented technology							[A]	Answer						Answer
Goodwill			-		-		[A]	Answer						Answer
			$6,250,000		$1,620,000									Answer
Liabilities and equity
Accounts payable			$200,000		$80,000									Answer
Accrued liabilities			$250,000		$140,000									Answer
Long-term liabilities			$1,800,000		$500,000									Answer
Common stock			$400,000		$100,000		[E]	Answer						Answer
APIC			$2,600,000		$200,000		[E]	Answer						Answer
Retained earnings			$1,000,000		$600,000		[E]	Answer						Answer
			$6,250,000		$1,620,000			Answer			Answer			Answer

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

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

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.

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.

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