Peace Corporation acquired 100 percent of Soft Inc. in a nontaxable transaction on December 31, 20X1. The following balance sheet information is available immediately following the transaction: Cash Accounts Receivable, net Inventory Deferred Tax Asset Investment in Soft Equipment, net Patent Total Assets Accounts Payable Accrued Vacation Payable Deferred Tax Liability Long-Term Debt Common Stock Retained Earnings Total Liabilities and Equity Peace Corporation Book Value Soft Inc. Fair Values Book Value $ 39,000 $ 39,000 $10,000 Fair Values $10,000 52,000 78,000 52,000 18,000 18,000 85,000 4,000 10,000 8,000 4,000 ? 84,000 84,000 160,000 195,000 26,000 40,000 22,000 $421,000 $62,000 $ 61,000 $ 61,000 $12,000 $12,000 14,000 14,000 4,000 3,000 ? 95,000 105,000 10,000 10,000 120,000 8,000 127,000 $421,000 29,000 $62,000 Additional Information 1. The current and future effective tax rate for both Peace and Soft is 40 percent. 2. The recorded deferred tax asset for Peace relates to the book-tax differences arising from the allowance for doubtful Accounts and the Accrued vacation payable. The expenses associated with each of these amounts will not be deductible for tax purposes until the related accounts receivable are written off or until the employee vacation is actually paid out. 3. The recorded deferred tax asset for Soft is related solely to the book-tax difference arising from the allowance for doubtful accounts. 4. The recorded deferred tax liability in both Peace and Soft relates solely to the book-tax differences arising from the depreciation of their respective equipment. 5. Accumulated depreciation on the financial accounting records of Peace and Soft is $45,000 and $11,000, respectively. 6. The Soft patent was identified by Peace in the due diligence process and has not previously been recorded in the accounting records of Soft. 7. The book and tax bases of all other assets and liabilities of Peace and Soft are the same. Required: a. Compute the tax bases of the assets and liabilities for Peace and Soft, where different from the amounts recorded in the respective accounting records. Tax basis of accounts receivable Peace Tax Basis Calculations Soft Tax Basis Calculations 0 $ 0 $ 0 $ 0 Tax basis of accrued vacation payable $ Tax basis of equipment Tax basis of patent b. Compute the fair value of the deferred tax assets and deferred tax liabilities for Soft. Total DTA related to Accounts Receivable Total DTL related to Inventory, Equipment, Patent c. Prepare all of the consolidation entries needed to prepare the worksheet for Peace and Soft at the date of acquisition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) view transaction list transaction list No Event Accounts A 1 Common stock Retained earnings Investment in Soft Corporation Debit Credit 8,000 29,000 37,000 B 2 Inventory 6,000 Equipment 14,000 Patent 22,000 Goodwill 21,800 Investment in Soft Corporation 47,000 Deferred tax liability 16,800 C 3 Accumulated depreciation Equipment 11,000 11,000 d. Prepare the consolidation worksheet for Peace and Soft at the date of acquisition. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) December 31, 20X1 Consolidation Entries Peace Corp. Soft Co. DR CR Consolidated Balance Sheet Cash $ 39,000 $ 10,000 $ 49,000 Accounts receivable 52,000 18,000 70,000 Inventory 78,000 4,000 6,000 88,000 Deferred tax asset 8,000 4,000 12,000 Equipment 205,000 37,000 14,000 256,000 Less: Accumulated depreciation (45,000) (11,000) 11,000 (45,000) Investment in Soft 84,000 84,000 0 Patent 0 0 22,000 22,000 Goodwill 0 0 21,800 21,800 Total Assets $ 421,000 $ 62,000 $ 74,800 $ 84,000 $ 473,800 Liabilities & Stockholders' Equity Accounts payable $ 61,000 $ 12,000 $ 73,000 Accrued vacation payable 14,000 14,000 Deferred tax liability 4,000 3,000 16,800 23,800 Long-term debt 95,000 10,000 105,000 Common stock 120,000 8,000 8,000 120,000 Retained earnings 127,000 29,000 29,000 127,000 Total Liabilities & Equity $ 421,000 $ 62,000 $ 37,000 $ 16,800 $ 462,800