Pushdown Accounting Assume a parent company acquires its subsidiary by paying $1,600,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Parent Parent Subsidiary Assets: Cash & receivables Inventory Property & equipment, net Equity investment Licenses $ 800,000 $ 300,000 600,000 200,000 2,300,000 975,000 1,600,000 225,000 $5,300,000 $1,700,000 Liabilities and stockholders' equity: Current liabilities Other liabilities Note payable Common stock APIC Retained earnings $ 400,000 $ 350,000 300,000 550,000 1,670,000 100,000 1,430,000 200,000 1,500,000 500,000 $5,300,000 $1,700,000 a. Compute the amount of goodwill implicit in the acquisition of the subsidiary. $ 0 b. Assume the subsidiary elects to apply pushdown accounting immediately after the above financial statements were prepared. Provide the journal entries required for the subsidiary to apply pushdown accounting. Description Debit Credit Property & equipment, net Licenses 0 0 0 0 0 0 0 0 1 0 0 0 0 c. Prepare the consolidation entry or entries on the date of acquisition, assuming the subsidiary applied pushdown accounting. Description Debit Credit 0 [E] Common stock APIC 0 O O O O 0 0 d. Prepare the consolidated balance sheet on the date of acquisition. Consolidated Balance Sheet Assets: Cash & receivables $ 0 Inventory 0 Property & equipment, net 0 Licenses 0 0 $ 0 0 0 0 Liabilities and stockholders' equity: Current liabilities $ Other liabilities Note payable Common stock APIC Retained earnings $ 0 0 0 HA 0 Pushdown Accounting Assume a parent company acquires its subsidiary by paying $1,600,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Parent Parent Subsidiary Assets: Cash & receivables Inventory Property & equipment, net Equity investment Licenses $ 800,000 $ 300,000 600,000 200,000 2,300,000 975,000 1,600,000 225,000 $5,300,000 $1,700,000 Liabilities and stockholders' equity: Current liabilities Other liabilities Note payable Common stock APIC Retained earnings $ 400,000 $ 350,000 300,000 550,000 1,670,000 100,000 1,430,000 200,000 1,500,000 500,000 $5,300,000 $1,700,000 a. Compute the amount of goodwill implicit in the acquisition of the subsidiary. $ 0 b. Assume the subsidiary elects to apply pushdown accounting immediately after the above financial statements were prepared. Provide the journal entries required for the subsidiary to apply pushdown accounting. Description Debit Credit Property & equipment, net Licenses 0 0 0 0 0 0 0 0 1 0 0 0 0 c. Prepare the consolidation entry or entries on the date of acquisition, assuming the subsidiary applied pushdown accounting. Description Debit Credit 0 [E] Common stock APIC 0 O O O O 0 0 d. Prepare the consolidated balance sheet on the date of acquisition. Consolidated Balance Sheet Assets: Cash & receivables $ 0 Inventory 0 Property & equipment, net 0 Licenses 0 0 $ 0 0 0 0 Liabilities and stockholders' equity: Current liabilities $ Other liabilities Note payable Common stock APIC Retained earnings $ 0 0 0 HA 0
