Question
The condensed balance sheets for Rice & Associates and Rachel Company as of December 30, 2016 are shown in Exhibit 1. On December 31, 2016,
The condensed balance sheets for Rice & Associates and Rachel Company as of December 30, 2016 are shown in Exhibit 1. On December 31, 2016, Rice & Associates purchased 80.0 percent of Rachel Company for $140,000 by issuing 50,000 shares of its previously authorized common stock. As of December 31, 2016, the fair values of Rachel Companys assets and liabilities are shown below, including customer lists, an intangible asset identified during the acquisition:
Cash $10,000
Accounts receivable 40,000
Inventory 70,000
Property, plant and equipment 120,000
Customer lists 10,000
Accounts payable 15,000
Long-term liabilities 65,000
Required:
a. Prepare a consolidated balance sheet immediately after the acquisition on December 31, 2016.
b. Will an account called investment in Rachel Company appear as an asset in Rice & Associates un-consolidated balance sheet? (circle one) Yes or No? Explain.
c. Will an account called investment in Rachel Company appear as an asset in Rice & Associates consolidated balance sheet? (circle one) Yes or No? Explain.
d. Will an account called goodwill appear as an asset in Rice & Associates un-consolidated balance sheet? (circle one) Yes or No? Explain.
e. Will an account called goodwill appear as an asset in Rachel Companys un-consolidated balance sheet? (circle one) Yes or No? Explain.
EXHIBIT 1 | ||||||
RICE & ASSOCIATES AND RACHEL | ||||||
BALANCE SHEETS | ||||||
Before Acquisition of Rachel | ||||||
Rice Before | ||||||
Issue Stock | ||||||
Assets | for Rachel | Rachel | ||||
Cash | $56,000 | $10,000 | ||||
Accounts receivable | 150,000 | 40,000 | ||||
Inventory | 300,000 | 40,000 | ||||
Property, plant & equipment | 400,000 | 130,000 | ||||
Total assets | $906,000 | $220,000 | ||||
Liabilities & Stockholder's Equity | ||||||
Accounts payable | $80,000 | $20,000 | ||||
Long-term liabilities | 300,000 | 50,000 | ||||
Common stock, par value $1 | 350,000 | 90,000 | ||||
Capital paid in excess of par value | 50,000 | 10,000 | ||||
Retained earnings | 126,000 | 50,000 | ||||
Total liabilities & stockholder's equity | $906,000 | $220,000 | ||||
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