Consolidation Working Paper, Identifiable Intangibles, Goodwill

International Technology Inc. (ITI) acquires all of the voting stock of Global Outsourcing Corporation (GOC) on June 30, 2010. Amounts paid are as follows (in millions):

Cash consideration to the former shareholders of GOC	$40
1,200,000 shares of new $1 par common stock issued	48
Registration fees on new stock issued, paid in cash	2.4
Outside legal and advisory services, paid in cash	4
Fair value of earnings contingency	1.6

The earnings contingency provides for a potential payout to the former shareholders of GOC at the end of the third year following acquisition. The balance sheets of both companies immediately prior to the acquisition are as follows. Fair values of GOC's assets and liabilities at the date of acquisition are also provided.

	ITI	GOC
Balance Sheets (in millions)	Book Value	Book Value	Fair Value
Current assets	$160	$8	$12
Property, plant and equipment, net	400	104	56
Intangible assets	1,040	16	24
Total assets	$1,600	$128
Current liabilities	$120	$16	$16
Long-term liabilities	960	80	82.4
Common stock, par	16	3.2
Additional paid-in capital	440	48
Retained earnings	80	(20)
Accumulated other comprehensive income	(12)	2.4
Treasury stock	(4)	(1.6)
Total liabilities and equity	$1,600	$128

The intangible assets reported above consist of patents and trademarks. GOC also has the following previously unreported intangible assets that meet ASC Topic 805 requirements for asset recognition:

	Fair Value
Advanced technology	$4
Customer lists	20

(a) Prepare the journal entry or entries ITI makes to record the acquisition on its own books (in millions and enter all decimal places).

General Journal
Description	Debit	Credit
Investment in GOC	Answer	Answer
AnswerMerger expensesContingent consideration liabilityEquity in net income for GOCGoodwillGain on purchaseRegistration fees on stock	Answer	Answer
Common stock	Answer	Answer
Additional paid-in capital	Answer	Answer
AnswerMerger expensesContingent consideration liabilityEquity in net income for GOCGoodwillGain on purchaseRegistration fees on stock	Answer	Answer
Cash	Answer	Answer

(b) Prepare a working paper to consolidate the balance sheets of ITI and GOC at June 30, 2010.

Enter answers in millions and enter all decimal places. Remember to use negative signs with your credit balance answers in the Dr (Cr) columns.

Consolidation Working Paper
	Accounts Taken From Books		Eliminations
(in millions)	ITI Dr (Cr)	GOC Dr (Cr)		Debit	Credit		Consolidated Balances Dr (Cr)
Current assets	Answer	Answer	(R)	Answer			Answer
Property, plant and equipment, net	Answer	Answer			Answer	(R)	Answer
Investment in GOC	Answer				Answer	(E)	Answer
					Answer	(R)
Intangible assets	Answer	Answer	(R)	Answer			Answer
Advanced technology	--	--	(R)	Answer			Answer
Customer lists	--	--	(R)	Answer			Answer
Goodwill	--	--	(R)	Answer			Answer
Current liabilities	Answer	Answer					Answer
Long-term liabilities	Answer	Answer			Answer	(R)	Answer
Common stock, $1 par	Answer	Answer	(E)	Answer			Answer
Additional paid-in capital	Answer	Answer	(E)	Answer			Answer
Retained earnings	Answer	Answer			Answer	(E)	Answer
Accumulated other comprehensive income	Answer	Answer	(E)	Answer			Answer
Treasury stock	Answer	Answer			Answer	(E)	Answer
Total:	Answer	Answer		Answer	Answer		Answer