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	$70
1,200,000 shares of new $1.5 par common stock issued	30
Registration fees on new stock issued, paid in cash	2
Outside legal and advisory services, paid in cash	5
Fair value of earnings contingency	1

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	$225	$15	$20
Property, plant and equipment, net	400	140	80
Intangible assets	1,400	25	38
Total assets	$2,025	$180
Current liabilities	$100	$35	$35
Long-term liabilities	1,250	101	110
Common stock, par	30	4
Additional paid-in capital	550	60
Retained earnings	115	(25)
Accumulated other comprehensive income	(15)	6
Treasury stock	(5)	(1)
Total liabilities and equity	$2,025	$180

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	$5
Customer lists	25

(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
Merger expensesContingent consideration liabilityEquity in net income for GOCGoodwillGain on purchaseRegistration fees on stock
Common stock
Additional paid-in capital
Merger expensesContingent consideration liabilityEquity in net income for GOCGoodwillGain on purchaseRegistration fees on stock
Cash

(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			(R)
Property, plant and equipment, net						(R)
Investment in GOC						(E)
						(R)
Intangible assets			(R)
Advanced technology	--	--	(R)
Customer lists	--	--	(R)
Goodwill	--	--	(R)
Current liabilities
Long-term liabilities						(R)
Common stock, $1 par			(E)
Additional paid-in capital			(E)
Retained earnings						(E)
Accumulated other comprehensive income			(E)
Treasury stock						(E)
Total:

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