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On January 1, 2020, Groenedal Company acquired 100 percent of the outstanding common stock of Aadorp Company. To acquire these shares, Groenedal issued 200,000 in

On January 1, 2020, Groenedal Company acquired 100 percent of the outstanding common stock of Aadorp Company. To acquire these shares, Groenedal issued 200,000 in long-term liabilities and 20,000 shares of common stock having a par value of 1 per share but a fair value of 10 per share. Groenedal paid 30,000 to accountants, lawyers and brokers for assistance in the acquisition and another 12,000 in connection with stock issuance costs.

Prior to these transactions, the balance sheets for the two companies were as follows:

Groenedal,

book value

Aadorp,

book value

Cash

60,000

20,000

Receivables

270,000

90,000

Inventory

360,000

140,000

Land

200,000

180,000

Buildings (net)

420,000

220,000

Equipment (net)

160,000

50,000

Accounts payable

-150,000

-40,000

Long-term liabilities

-430,000

-200,000

Common stock ( 1 par value)

-110,000

-

Common stock ( 20 par value)

-

-120,000

Additional paid-in capital

-360,000

-

Retained earnings, 1/1/2020

-420,000

-340,000

In Groenedals appraisal of Aadorp, three accounts were undervalued on the subsidiarys books: Inventory by 5,000, Land by 20,000, and Buildings by 30,000. Groenedal plans to maintain Aadorps separate legal identity and to operate Aadorp as a wholly owned subsidiary.

Question 4

Determine the amounts that Groenedal Company would report in its postacquisition (single) balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Groenedals retained earnings.

Question 5

Prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2020.

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