Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Phone Corporation acquired 70 percent of Smart Corporations common stock on December 31, 20X4, for $95,200. At that date, the fair value of the noncontrolling

Phone Corporation acquired 70 percent of Smart Corporations common stock on December 31, 20X4, for $95,200. At that date, the fair value of the noncontrolling interest was $40,800. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

Phone Smart
Item Corporation Corporation
Cash $ 61,300 $ 25,000
Accounts Receivable 90,000 50,000
Inventory 149,000 94,000
Land 79,000 50,000
Buildings & Equipment 414,000 263,000
Less: Accumulated Depreciation (165,000 ) (71,000 )
Investment in Smart Corporation 95,200
Total Assets $ 723,500 $ 411,000
Accounts Payable $ 148,500 $ 27,000
Mortgage Payable 290,000 269,000
Common Stock 77,000 37,000
Retained Earnings 208,000 78,000
Total Liabilities & Stockholders Equity $ 723,500 $ 411,000

At the date of the business combination, the book values of Smarts assets and liabilities approximated fair value except for inventory, which had a fair value of $100,000, and buildings and equipment, which had a fair value of $207,000. At December 31, 20X4, Phone reported accounts payable of $13,500 to Smart, which reported an equal amount in its accounts receivable.

Required: a. Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the basic consolidation entry.

Record the excess value (differential) reclassification entry.

Record the entry to eliminate the intercompany accounts.

Record the optional accumulated depreciation consolidation entry.

b. Prepare a consolidated balance sheet worksheet. (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.)

c. Prepare a consolidated balance sheet in good form. (Amounts to be deducted should be indicated with a minus sign.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting

Authors: Pauline Weetman

2nd Edition

0273718452, 978-0273718451

More Books

Students also viewed these Accounting questions