Exercise 3: Initial Consolidation as of Date of Acquisition
CheapBeer Inc. purchased 100% of the outstanding stock of FancyBrew Inc. for purposes of horizontal consolidation and paid $500,000 cash for the stock. The balance sheets for the two companies immediately
after the acquisition are as follows:
FancyBrew Inc.										CheapBeer Inc.
Balance Sheet as of 5/15/17										Balance Sheet as of 5/15/17
Assets					Liabilities & Owners' Equity					Assets				Liabilities & Owners' Equity
		Book Value	Fair Market Value				Book Value	Fair Market Value				Book Value				Book Value
Cash		$0	$0		A/P		$50,000	$50,000		Cash		$250,000		A/P		$400,000
A/R		75,000	75,000		Notes Payable		30,000	30,000		A/R		150,000		Notes Payable		100,000
Inventory		150,000	125,000		Mortgage Payable		50,000	50,000		Inventory		350,000		Mortgage Payable		50,000
Net Fixed Assets		200,000	350,000		Total Liabilities:		$130,000			Net Fixed Assets		250,000		Total Liabilities:		$550,000
Patents		0	25,000							Investment in Subsidiary		500,000
					Common Stock		75,000							Common Stock		150,000
					Retained Earnings		220,000							Retained Earnings		800,000
					Total Equity:		$295,000							Total Equity:		$950,000
Total Assets:		$425,000			Total Liabilities & O.E.:		$425,000			Total Assets:		$1,500,000		Total Liabilities & O.E.:		$1,500,000
A) Complete the below Consolidation Entries for the "Consolidation & Elimination Worksheet" for this acquisition as of the date of the acquisition by entering required fiures into the gray shaded cells. When correct, the cells will change color.
			Trial Balances		Combined	Consolidation Entries				Consolidated Balance
Account			CheapBeer	FancyBrew		Entry	Debit	Entry	Credit
Cash			$250,000	$0	$250,000
A/R			150,000	75,000	225,000
Inventory			350,000	150,000	500,000			"B"
Net Fixed Assets			250,000	200,000	450,000	"B"
Patents			0	0	0	"B"
Investment in Subsidiary			500,000	0	500,000			"A"
								"B"
								"C"
Goodwill			0	0	0	"C"
A/P			(400,000)	(50,000)	(450,000)
Notes Payable			(100,000)	(30,000)	(130,000)
Mortgage Payable			(50,000)	(50,000)	(100,000)
Common Stock - CheapBeer			(150,000)	0	(150,000)
Common Stock - FancyBrew			0	(75,000)	(75,000)	"A"
Retained Earnings - CheapBeer			(800,000)	0	(800,000)
Retained Earnings - FancyBrew			0	(220,000)	(220,000)	"A"
		Totals	$0	$0	$0		$0		$0	$0
Entry "A" Eliminate the subsidiary's equity against the parent's investment account
Entry "B" Adjust the net assets of the subsidiary to Fair Market Value and offset to the investment
Entry "C" Any remaining amount in the investment account gets eliminated to Goodwill