Phelps, Inc. acquires all of the stock of Skelton Company by issuing 1 million shares of its capital stock with a fair value of $18/share. At the date of acquisition, Skeltons current assets had a book value of $5 million and a fair value of $4 million, its noncurrent assets had a book value of $45 million and a fair value of $25 million, and its liabilities had a book value of $20 million, which approximated fair value. Skelton also has previously unreported identifiable intangibles, valued at $12 million, that meet ASC Topic 805s criteria for recognition. Skeltons shareholders equity consists of capital stock of $38 million and a retained loss of $8 million (debit balance).

Required

a. Calculate the gain on acquisition and prepare Phelps journal entry to record the acquisition on its own books.

Enter answers in millions.

Description		Debit	Credit
AnswerCashGain on acquisitionGoodwillInvestment in Skelton		Answer	Answer
AnswerCapital stockCashGoodwillInvestment in Skelton		Answer	Answer
AnswerCapital stockGain on acquisitionGoodwillInvestment in Skelton		Answer	Answer

b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Phelps and Skelton at the date of acquisition.

Enter answers in millions.

Ref.	Description		Debit	Credit
(E)	AnswerCapital stockCurrent assetsGain on acquisitionInvestment in SkeltonRetained earnings		Answer	Answer
	AnswerCapital stockCurrent assetsGain on acquisitionInvestment in SkeltonRetained earnings		Answer	Answer
	Investment in Skelton		Answer	Answer
(R)	Identifiable intangibles		Answer	Answer
	AnswerCapital stockCurrent assetsGain on acquisitionInvestment in SkeltonRetained earnings		Answer	Answer
	AnswerCapital stockCurrent assetsGain on acquisitionInvestment in SkeltonRetained earnings		Answer	Answer
	Noncurrent assets		Answer	Answer