On January 1, 2021, Eisman Company purchased 100% of the common stock Kandler Enterprises for $600,000. This transaction is a "nontaxable" acquisition under the Internal Revenue Code. On the date of acquisition, Kandler had common stock of $200,000 and retained earnings of $280,000. The fair values of Kandler's net assets equal their respective book values except for equipment that is undervalued by $30,000 and an unrecorded brand name valued at $45,000. Assume that the tax bases of Kandler's pre-acquisition identifiable net assets equal their book values. Eisman's tax effective tax rate is 30%. What is the amount of deferred taxes that result from this combination?

Select one:

A. $36,000 deferred tax asset

B. $22,500 deferred tax liability

C. $36,000 deferred tax liability

D. $22,500 deferred tax asset

Pushdown Accounting

Assume a parent company acquires its subsidiary by paying $1,400,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary:

	Parent	Subsidiary
Assets:
Cash & receivables	$ 800,000	$ 200,000
Inventory	600,000	200,000
Property & equipment, net	2,300,000	875,000
Equity investment	1,400,000
Licenses	-	125,000
	$ 5,100,000	$ 1,400,000
Liabilities and stockholders' equity:
Current liabilities	$ 400,000	$ 250,000
Other liabilities	300,000	-
Note payable	-	450,000
Common stock	1,670,000	100,000
APIC	1,430,000	200,000
Retained earnings	1,300,000	400,000
	$ 5,100,000	$ 1,400,000

a. Compute the amount of goodwill implicit in the acquisition of the subsidiary. $Answer

b. Assume the subsidiary elects to apply pushdown accounting immediately after the above financial statements were prepared. Provide the journal entries required for the subsidiary to apply pushdown accounting.

Description	Debit	Credit
Property & equipment, net	Answer	Answer
Licenses	Answer	Answer
Answer

Answer	Answer
Answer

Answer	Answer
Answer

Answer	Answer
Answer

Answer

Answer

c. Prepare the consolidation entry or entries on the date of acquisition, assuming the subsidiary applied pushdown accounting.

Description	Debit	Credit
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	Answer

Answer	Answer
	Answer

Answer

Answer

d. Prepare the consolidated balance sheet on the date of acquisition.

Consolidated Balance Sheet
Assets:
Cash & receivables		Answer
Inventory		Answer
Property & equipment, net		Answer
Licenses		Answer
Answer

	Answer
		Answer
Liabilities and stockholders' equity:
Current liabilities		Answer
Other liabilities		Answer
Note payable		Answer
Common stock		Answer
APIC		Answer
Retained earnings		Answer
		Answer