Question
etermining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 80,000 shares of its Common
etermining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 80,000 shares of its Common Stock, with a fair value on the acquisition date of $24 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 subsidiarys assets and liabilities at an amount equaling their book values except for a building that is undervalued by $400,000, an unrecorded License Agreement with a fair value of $200,000, and an unrecorded Customer List owned by the subsidiary with a fair value of $100,000. Any further discrepancy between the purchase price and the book value of the subsidiarys Stockholders Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition.
a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts will each of the following be reported on the consolidated balance sheet? (see table numbered 1-7 to answer)
Balance Sheet | Parent | Subsidiary |
---|---|---|
Assets | ||
Cash | $700,000 | $200,000 |
Accounts receivable | 300,000 | 400,000 |
Inventory | 450,000 | 500,000 |
Equity investment | 1,920,000 | |
Property, plant and equipment (PPE), net | 1,500,000 | 900,000 |
$4,870,000 | $2,000,000 | |
Liabilities and stockholders equity | ||
Accounts payable | $150,000 | $100,000 |
Accrued liabilities | 180,000 | 200,000 |
Long-term liabilities | 1,000,000 | 550,000 |
Common stock | 140,000 | 100,000 |
APIC | 2,000,000 | 150,000 |
Retained earnings | 1,400,000 | 900,000 |
$4,870,000 | $2,000,000 |
1. | Accounts Receivable | Answer |
2. | Equity Investment | Answer |
3. | PPE, net | Answer |
4. | Goodwill | Answer |
5. | Common Stock | Answer |
6. | APIC | Answer |
7. | Retained Earnings | Answer |
b. What intangible assets will be reported on the consolidated balance sheet and at what amounts?
License Agreement | Answer |
Customer List | Answer |
Goodwill | Answer |
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