Pont Motor Company owns $30$ percent of the stock of Skoding Automotive Company, and reports its investment using the equity method. It acquires the remaining $70$ percent of Skoding$$s stock by issuing to Skoding$$s shareholders Pont Motor stock with a fair value of $$40$ million. Pont records the acquisition as a stock acquisition on its own books. At the date of acquisition, Pont$$s $30$ percent percent investment in Skoding was carried on Pont$$s books at $$8$ million and had a fair value of $$14$ million. Skoding$$s balance sheet at the date of acquisition, and fair value information on its assets and liabilities, is as follows:

Book Value Dr $($Cr$)$ Fair Value Dr $($Cr$)$

Current assets $$4,000,000$ $$6,400,000$

Property $62,000,00056,000,000$

Liabilities $(48,000,000)(49,600,000)$

Capital stock $(24,000,000)$

Retained deficit $5,600,000$

Treasury stock $400,000$

Total $$0$

Skoding also has previously unreported identifiable intangible assets that meet ASC Topic $805$ requirements for capitalization, valued at $$12$ million.

Required

Note: Provide all answers in millions. Do not round. For example, $5,500,000$ would be $5\mathrm{.}5.$

a$.$ Prepare the journal entry or entries Pont made to record the stock acquisition on its own books.

Debit Credit

$40$

$0$

Answer

Investment in Skoding $($stock acquisition$)$

$0$

$24$

Answer

To revalue the equity investment to fair value

Liabilities

$1\mathrm{.}6$

$0$

Answer

$0$

$0$

Answer

$0$

$0$

Answer

To record the acquisition

b$.$ Prepare working paper eliminating entries $($E$)$ and $($R$)$ to combine the accounts of Pont and Skoding at the date of acquisition.

Debit Credit

$($E$)$

Investment in Skoding

$36$

$0$

Answer

Capital stock

$0$

$24$

Answer

Retained earnings

$0$

$5\mathrm{.}6$

Answer

Treasury stock

$0$

$0\mathrm{.}4$

Answer

To eliminate Skoding's equity accounts against the investment account

$($R$)$

Current assets

$2\mathrm{.}4$

$0$

Answer

Identifiable intangible assets

$6$

$0$

Answer

$1\mathrm{.}6$

$0$

Answer

Property

$0$

$8$

Answer

Liabilities

$0$

$1\mathrm{.}6$

Answer

$0$

$0$

Answer

To revalue Bay's assets and liabilities to fair value