Consolidation Eliminating Entries

In July 2019, IBM Corporation acquired all of the outstanding stock of Red Hat Software, a provider of open-source and cloud technologies. Cash paid for outstanding Red Hat stock totaled $73,082 million. In addition, stock-based compensation awards attributable to pre-combination services had a fair value of $365 million, and stock issued to holders of vested performance share units were valued at $221 million. Acquisition-related legal and advisory fees of $397 million were paid in cash. Compensation related to employee retention plans for the period following the acquisition, paid in cash in 2019, totaled $483 million. An estimated $389 million associated with these retention plans remains to be paid in future years. Red Hats balance sheet at the date of acquisition, plus fair value information, are as follows (in millions):

Book ValueFair ValueCurrent assets$6,907$6,691Property, plant and equipment3,8051,972Intangible assets41828,291Goodwill2,673-Total assets13,803Current liabilities3,4942,894Noncurrent liabilities6,6198,957Total liabilities10,113Capital stock5,991Retained earnings4,610Treasury stock(6,810)Accumulated other comprehensive loss(101)Total equity3,690Total liabilities and equity$13,803

Required

Note: Provide all answers in millions.

a. Prepare IBMs journal entry or entries to record the stock acquisition on its own books.

DebitCreditAccumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock To record the acquisition

b. Prepare consolidation working paper eliminating entries (E) and (R) to consolidate the accounts of IBM and Red Hat at the date of acquisition.

DebitCredit(E)Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock To eliminate Red Hat's equity accounts against investment account(R)Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock Accumulated other comprehensive lossCapital stockCashCurrent assetsCurrent liabilitiesGoodwill (new)Goodwill (old)Identifiable intangiblesInvestment in Red HatMerger expensesNoncurrent liabilitiesPaid-in capitalProperty, plant and equipmentRetained earningsTreasury stock To revalue Bay's assets and liabilities to fair value