Consolidation Eliminating Entries, Several Years Since Acquisition

In July 2019, IBM Corporation acquired all of the outstanding stock of Red Hat Software. Cash paid for outstanding Red Hat stock totaled $177,485 million. In addition, stock-based compensation awards attributable to pre-combination services had a fair value of $887 million, and stock issued to holders of vested performance share units were valued at $536 million. Acquisition-related legal and advisory fees of $964 million were paid in cash. Compensation related to employee retention plans for the period following the acquisition, paid in cash in 2019, totaled $1,173 million. An estimated $944 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):

(in millions)	Book Value	Fair Value
Current assets	$16,774	$16,249
Property, plant and equipment	9,241	4789
Intangible assets	1015	68,707
Goodwill	6,492
Total assets	$33,522
Current liabilities	$8,486	$7,028
Noncurrent liabilities	16,075	21,752
Total liabilities	24,561
Capital stock	14,550
Retained earnings	11,195
Treasury stock	(16,539)
Accumulated other comprehensive loss	(245)
Total equity	8,961
Total liabilities and equity	$33,522

It is now December 31, 2023, the reporting year-end for both IBM and Red Hat. IBM uses the complete equity method to account for its investment in Red Hat on its own books. Assume the acquisition took place July 1, 2019. Also assume the following information (in millions):

Information concerning revaluations is as follows:

- Revaluation of current assets relate to inventories sold in 2019.

- The revalued property, plant and equipment has a 10 -year life, straight-line.

- The revaluation of intangible assets consists of $36,251 for client relationships with a 10 -year life, $22,965 for completed technology with a 9 -year life, and $8,476 for trademarks, with a 20 -year life, all straight-line.

- No impairment is reported for goodwill.

- Revaluation of current liabilities relates to liabilities settled in 2019.

- Revaluation of noncurrent liabilities relates to liabilities settled prior to 2023.

Red Hats retained earnings at January 1, 2023, is $20,400; its accumulated other comprehensive loss at January 1, 2023, is $510. There are no changes in Red Hats capital stock or treasury stock. For 2023, Red Hat reports income of $7,650 and other comprehensive losses of $128.

For the questions below, show your answers in millions, and round to the nearest million.

Note: Do not round intermediate calculations - only round final answers.

Required

a. Calculate the balance in the investment account, reported on IBMs books on July 1, 2019, and on December 31, 2023.

July 1, 2019 $Answer

December 31, 2023 $Answer

b. Prepare the eliminating entries (C), (E), (R), and (O) necessary to consolidate the trial balances of IBM and Red Hat at December 31, 2023.

		Debit	Credit
(C)	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	To eliminate current year's equity method entries
(E)	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	To eliminate subsidiary's equity account balances
(R)	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	To recognize fair value revaluations
(O)	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	Accumulated other comprehensive loss, beginningAmortization expense Capital stockClient relationships Completed technology Depreciation expenseEquity in net income of Red HatEquity in OCL of Red HatGoodwill Investment in Red HatProperty, plant and equipment Retained earnings, beginningTrademarks Treasury stock
	To recognize revaluation write-offs