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 $42 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 subsidiary's 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 investment 3,108,000 * Common stock 168.000 0 Common stock APIC 0 168,000 0 2,940,000 x 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 3,528,000 Property, plant & equipment 10,600,000 1,955,140 $15,742,320 $3,667,200 $15,742,320 $3,667,200 Liabilities and stockholders' equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC Retained earnings $150,480 $177,800 176,640 309,400 3,840,000 910,000 428,400 332,000 3,612,000 377,500 7,534,800 1,560,500 $15,742,320 $3,667,200 Consolidation Journal Description Debit [E] Common stock 232,000 x APIC 3,108,000 X Credit 0 0 Retained earnings 64 TOTO Retained earnings Equity investment [A] Trademark Video library Patented technology Retained earnings Equity investment 64,000 x 0 0 3,276,000 X 240,000 0 600,000 0 125,000 0 432,800 x 0 0 1,397,800 x X . c. Prepare the consolidation spreadsheet. Consolidation Worksheet Parent Subsidiary Debit Assets Cash $514,020 $265,160 Accounts receivable 450,300 Credit Consolidated $ 779,360 x 1,083,660 $ Cash Accounts receivable Inventory Equity investment $514,020 450,300 650,000 3,528,000 $265,160 633,360 813,540 779,360 x 1,083,660 1,463,540 [E) $ [A] 168,000 x 3,108,000 x PPE, net 10,600,000 1,955,140 Trademark Video library Patented technology Goodwill $15,742,320 $3,667,200 Liabilities and equity Accounts payable $150,480 $177,800 Accrued liabilities $176,640 $309.400 [A] [A] [A] [A] 240,000 600,000 125,000 965,000 x 12,255,140 x 240,000 600,000 125,000 0x $ 16,556,70 % $ 328,280 486,040 Patented technology Goodwill [A] [A] 125,000 965,000 x 125,000 0X $ 16,556,70 X $15,742,320 $3,667,200 Liabilities and equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC Retained earnings $150,480 $177,800 $176,640 $309,400 $3,840,000 $910,000 $428,400 $332,000 [E] $ 64,000 $3,612,000 $377,500 [E] $ 559,500 x $7,534,800 $1,560,500 [E] $1,400,500 x $15,742,320 $3,667,200 $ 0X $ 328,280 486,040 4,750,000 428,400 3,082,500 x 7,534,800 $ 2,054,000 x $ 16,803,52 X
