Step Acquisition and Consolidation

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 Skodings stock by issuing to Skodings shareholders Pont Motor stock with a fair value of $60 million. Pont records the acquisition as a stock acquisition on its own books. At the date of acquisition, Ponts 30 percent percent investment in Skoding was carried on Ponts books at $12 million and had a fair value of $22 million. Skodings 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	$6,000,000	$9,600,000
Property	93,000,000	84,000,000
Liabilities	(72,000,000)	(74,400,000)
Capital stock	(36,000,000)
Retained deficit	8,400,000
Treasury stock	600,000
Total	$0

Skoding also has previously unreported identifiable intangible assets that meet ASC Topic 805 requirements for capitalization, valued at $18 million.

Required

Note: Provide all answers in millions. Do not round. For example, 5,500,000 would be 5.5.

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

		Debit	Credit
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in Skoding (equity method)Investment in Skoding (stock acquisition)LiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in Skoding (equity method)Investment in Skoding (stock acquisition)LiabilitiesPropertyRetained earningsTreasury stock		Answer
	To revalue the equity investment to fair value
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in Skoding (equity method)Investment in Skoding (stock acquisition)LiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in Skoding (equity method)Investment in Skoding (stock acquisition)LiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in Skoding (equity method)Investment in Skoding (stock acquisition)LiabilitiesPropertyRetained earningsTreasury stock		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)	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	To eliminate Skoding's equity accounts against the investment account
(R)	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	Capital stockCurrent assetsGain on investmentGoodwillIdentifiable intangible assetsInvestment in SkodingLiabilitiesPropertyRetained earningsTreasury stock		Answer
	To revalue Bay's assets and liabilities to fair value