Phelps, Inc. acquires all of the stock of Skelton Company for $$8$ million in cash. At the date of acquisition, Skelton$$s current assets had a book value of $$5$ million and a fair value of $$3$ million, its noncurrent assets had a book value of $$45$ million and a fair value of $$20$ million, and its liabilities had a book value of $$30$ million, which approximated fair value. Skelton also has previously unreported identifiable intangibles, valued at $$17$ million, that meet ASC Topic $805$s criteria for recognition. Skelton$$s shareholders$$ equity consists of capital stock of $$25$ million and a retained loss of $$5$ 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

Answer

Investment in Skelton

Answer

$8,000,000$

Answer

$0$

Answer

Cash

Answer

$0$

Answer

$8,000,000$

Answer

Gain on acquisition

Answer

$0$

Answer

$2,000,000$

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$)$ Answer

Capital stock

Answer

$25,000,000$

Answer

$0$

Answer

Retained earnings

Answer

$0$

Answer

$5,000,000$

Investment in Skelton Answer

$0$

Answer

$8,000,000$

$($R$)$ Identifiable intangibles Answer

$17,000,000$

Answer

$0$

Answer

Investment in Skelton

Answer

$10,000,000$

Answer

$0$

Answer

Current assets

Answer

$0$

Answer

$2,000,000$

Noncurrent assets Answer

$0$

Answer

$25,000,000$