Patterson Company acquired all of Shapiro, Inc.'s outstanding shares on December 31, 2021 for $495,000 by issuing $200,000 in long term liabilities and paying $295,000 in cash. Patterson also paid in cash, $45,000, for legal and accounting fees associated with the acquisition. Several of Shapiros accounts have fair values that differ from book values. Shapiro has also internally developed assets that remain unrecorded on its books (i.e., book value equals zero, but fair value is non-zero). Its remaining assets and liabilities have book values equal their fair values. The assets and liabilities with fair value and book value differences are reported as follows:

A) Assume that no dissolution takes place in connection with this combination. Patterson will operate Shapiro as a wholly owned subsidiary with a separate legal and accounting identity. Both companies retain their separate legal identities. Prepare the following:

1. Journal entries to record the business combination in Pattersons book.

2. Using the worksheet provided, consolidate the two companies as of the combination date. Be sure to adjust Pattersons accounts for entries in part B (1) before preparing the consolidated balance sheet.

Computer software Equipment Client contracts In-process research and development Notes payable Book Values $ 20,000 $ $ 40,000 $ $ $ $ $ $ (60,000 $ Fair Values 70,000 30,000 100,000 40,000 (65,000) On December 31, 2021, the pre-combination book values of both companies are as follows. $ $ $ Cash Receivables Inventory Computer software Buildings (net) Equipment (net) Total assets Patterson 531,000 $ 116,000 $ 140,000 $ 210,000 $ 595,000 $ 308,000 $ 1,900,000 $ Shapiro 18,000 52,000 90,000 20,000 130,000 40,000 350,000 $ $ $ $ $ $ $ Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Total liabilities and equities (88,000) $ (510,000) $ (380,000) $ (170,000) $ (752,000) $ (1,900,000) $ (25,000) (60,000) (100,000) (25,000) (140,000) (350,000) $ $ $ Note: Parentheses indicate a negative balance. Part A (2): Label Accounts Pre-Combination Patterson Consolidation Entries Dr. Cr. Post-Combination Patterson $ $ $ $ $ $ $ 531,000 116,000 140,000 210,000 595,000 308,000 1.900.000 Assets: Cash Receivables Inventory Computer software Buildings (net) Equipment (net) Total assets Liabilities: Accounts payable Notes payable Owners' Equity: Common stock Additional paid-in capital Retained earnings Total liabilities and equities $ $ (88,000) (510,000) $ $ $ (380,000) (170,000) (752,000) (1,900,000 $ Note: Use parentheses to indicate credit balances if a single column is used to show debit/credit balances. Part B (2): Label Patterson Co. and Shapiro, Inc. Consolidation Worksheet December 31, 2021 Accounts Shapiro Consolidation Entries Consolidated Totals Patterson (adjusted for acquisition entries) Dr. Cr. $ $ $ S 18,000 52,000 90,000 20,000 130,000 40,000 350.000 $ $ $ Assets: Cash Receivables Inventory Computer software Buildings (net) Equipment (net) Total assets Liabilities: Accounts payable Notes payable Owners' Equity: Common stock Additional paid-in capital Retained earnings Total liabilities and equities $ $ (25,000) (60,000) $ $ $ S (100,000) (25,000) (140,000) (350.000 Note: Use parentheses to indicate credit balances if a single column is used to show debit/credit balances. Part B (2): Label Patterson Co. and Shapiro, Inc. Consolidation Worksheet December 31, 2021 Accounts Shapiro Consolidation Entries Consolidated Totals Patterson (adjusted for acquisition entries) Dr. Cr. $ $ $ S 18,000 52,000 90,000 20,000 130,000 40,000 350.000 $ $ $ Assets: Cash Receivables Inventory Computer software Buildings (net) Equipment (net) Total assets Liabilities: Accounts payable Notes payable Owners' Equity: Common stock Additional paid-in capital Retained earnings Total liabilities and equities $ $ (25,000) (60,000) $ $ $ S (100,000) (25,000) (140,000) (350.000 Note: Use parentheses to indicate credit balances if a single column is used to show debit/credit balances