Question
On January 1, 2018 Casey Corporation exchanged $3,282,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy
On January 1, 2018 Casey Corporation exchanged $3,282,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems.
At the acquisition date, Casey prepared the following fair-value allocation schedule:
Fair value of Kennedy (consideration transferred) | $ | 3,282,000 | |||||
Carrying amount acquired | 2,600,000 | ||||||
Excess fair value | $ | 682,000 | |||||
to buildings (undervalued) | $ | 353,000 | |||||
to licensing agreements (overvalued) | (128,000 | ) | 225,000 | ||||
to goodwill (indefinite life) | $ | 457,000 | |||||
Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate financial records.
Accounts | Casey | Kennedy | |||||
Cash | $ | 441,000 | $ | 174,000 | |||
Accounts receivable | 1,255,000 | 323,000 | |||||
Inventory | 1,270,000 | 992,000 | |||||
Investment in Kennedy | 3,282,000 | 0 | |||||
Buildings (net) | 5,587,500 | 1,880,000 | |||||
Licensing agreements | 0 | 3,010,000 | |||||
Goodwill | 963,500 | 0 | |||||
Total assets | $ | 12,799,000 | $ | 6,379,000 | |||
Accounts payable | $ | (329,000 | ) | $ | (399,000 | ) | |
Long-term debt | (3,470,000 | ) | (3,380,000 | ) | |||
Common stock | (3,000,000 | ) | (1,000,000 | ) | |||
Additional paid-in capital | 0 | (500,000 | ) | ||||
Retained earnings | (6,000,000 | ) | (1,100,000 | ) | |||
Total liabilities and equities | $ | (12,799,000 | ) | $ | (6,379,000 | ) | |
Prepare an acquisition-date consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation. (Negative amounts should be indicated by a minus sign.)
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