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The following are preliminary financial statements for Black Co. and Blue Co. for the year ending December 31, 2013. Black Co. Blue Co. Sales $360,000 $228,000 Expenses (240,000) (132,000) Net income $120,00 $ 0 96,000 Retained earnings, January 1, 2013 Net income (from above) Dividends paid Retained earnings, December 31, 2013 $480,000 120,000 (36,000) $564,00 0 $252,000 96,000 -0$348,00 0 Current assets Land Building (net) Total assets $360,000 120,000 480,000 $960,00 0 $120,000 108,000 336,000 $564,00 0 Liabilities Common stock Additional paid-in capital Retained earnings, December 31,2013 Total liabilities and stockholders' equity $108,000 192,000 96,000 564,000 $960,00 0 $132,000 72,000 12,000 348,000 $564,00 0 On December 31, 2013 (subsequent to the preceding statements), Black exchanged 10,000 shares of its $10 par value common stock for all of the outstanding shares of Blue. Black's stock on that date has a fair value of $50 per share. Black was willing to issue 10,000 shares of stock because Blue's land was appraised at $204,000. Black also paid $14,000 to several attorneys and accountants who assisted in creating this combination. Required: 1.Assuming the parent employs the equity method, record the journal entries on the parent's books related to this acquisition. 2.Assuming that these two companies retained their separate legal identities, prepare a full set of consolidation entries as of December 31, 2013. Solution-1 Entry to record the acquisition on Black co. books S.No. 1 Account Titles & Explanation Professional fee expense Investment in Blue Co. Common Stock-Black (10,000*10 Par) Additional Paid-in-capital-Black (10,000*$40) Cash Gain on Bargain purchase Entry S 2 Common Stock Additional Paid-in-capital Retained Earning (12/31/2015) Investment in Blue Co. (To eliminate Blue Co's stockholders' equity accounts and the book value of Blue Co's net assets from Black Co's investment account) Entry A 3 Land Investment in Blue Co. (To eliminate Black Co's excess payment over book value from its investment account and reassign the excess to specific assets from the bargain purchase) Solution-2 For the Year Ended 12/31/2013 Account Black Company Income Statement Sales Expense Bargain-Purchase-Gain Net Income -360000 254000 -28000 -134000 Statement of Retained Earnings R/E, 1/1/15 Net Income Dividends R/E, 12/31/15 -480000 -134000 36000 -578000 Balance Sheet Current Assets Investment in Blue Co. Land Buildings (net) 346000 528000 120000 480000 Total Assets 1474000 Liabilities Common Stock Additional Paid-in-Capital R/E, 12/31/15 -108000 -292000 -496000 -578000 Total Liabilities & Stockholders Equity -1474000 CalculationCalculation for Potential Goodwill: Consideration transferred by Black Co. Book value of Blue Co. Excess of Cost over Book Value Allocations: Land (204,000 - 108,000) - Bargain Purchase 500000 -432000 68000 -96000 -28000 Debit 14000 528000 Credit 100000 400000 14000 28000 72000 12000 348000 432000 96000 96000 Blue Company Consolidation Entries Dr. Cr. Consolidated Balance -360000 254000 -28000 -134000 -480000 -134000 36000 -578000 120000 108000 336000 (A) 96,000 (S) 432,000 (A) 96,000 466000 0 324000 816000 564000 1606000 -132000 -72000 -12000 -348000 (S) 72,000 (S) 12,000 (S) 348,000 -240000 -292000 -496000 -578000 -564000 528000 Entry (S) Entry (A) Entry (A) Entry (A) 528000 -1606000 Solution-1 Entry to record the acquisition on Black co. books S.No. 1 Account Titles & Explanation Professional fee expense Investment in Blue Co. Common Stock-Black (10,000*10 Par) Additional Paid-in-capital-Black (10,000*$40) Cash Gain on Bargain purchase Entry S 2 Common Stock Additional Paid-in-capital Retained Earning (12/31/2015) Investment in Blue Co. (To eliminate Blue Co's stockholders' equity accounts and the book value of Blue Co's net assets from Black Co's investment account) Entry A 3 Land Investment in Blue Co. (To eliminate Black Co's excess payment over book value from its investment account and reassign the excess to specific assets from the bargain purchase) Solution-2 For the Year Ended 12/31/2013 Account Black Company Income Statement Sales Expense Bargain-Purchase-Gain Net Income -360000 254000 -28000 -134000 Statement of Retained Earnings R/E, 1/1/15 Net Income -480000 -134000 Dividends R/E, 12/31/15 36000 -578000 Balance Sheet Current Assets Investment in Blue Co. Land Buildings (net) Total Assets 346000 528000 120000 480000 1474000 Liabilities Common Stock Additional Paid-in-Capital R/E, 12/31/15 -108000 -292000 -496000 -578000 Total Liabilities & Stockholders Equity -1474000 CalculationCalculation for Potential Goodwill: Consideration transferred by Black Co. Book value of Blue Co. Excess of Cost over Book Value Allocations: Land (204,000 - 108,000) - Bargain Purchase 500000 -432000 68000 -96000 -28000 Debit 14000 528000 Credit (In Question) Kindly check below balance sheet (72,000+12,000+$348,000 = $528,000) 100000 400000 14000 28000 (In Question) 72000 12000 348000 432000 96000 96000 Blue Company 204,000 - 108,000 Consolidation Entries Dr. Cr. 120000 108000 336000 564000 (A) 96,000 -132000 -72000 -12000 -348000 (S) 72,000 (S) 12,000 (S) 348,000 -564000 528000 Entry (S) Entry (A) Entry (A) Entry (A) (S) 432,000 (A) 96,000 528000 Black also paid $14,000 to several attorneys and accountants who assisted in creating this combination. check below balance sheet (72,000+12,000+$348,000 = $528,000) Black also paid $14,000 to several attorneys and accountants who assisted in creating this combination. 204,000 Given in question Consolidated Balance -360000 254000 -28000 -134000 -480000 -134000 36000 -578000 466000 0 324000 816000 1606000 -240000 -292000 -496000 -578000 -1606000 Solution-1 Entry to record the acquisition on Black co. books S.No. 1 Account Titles & Explanation Professional fee expense Investment in Blue Co. Common Stock-Black (10,000*10 Par) Additional Paid-in-capital-Black (10,000*$40) Cash Gain on Bargain purchase Entry S 2 Common Stock Additional Paid-in-capital Retained Earning (12/31/2015) Investment in Blue Co. (To eliminate Blue Co's stockholders' equity accounts and the book value of Blue Co's net assets from Black Co's investment account) Entry A 3 Land Investment in Blue Co. (To eliminate Black Co's excess payment over book value from its investment account and reassign the excess to specific assets from the bargain purchase) Solution-2 For the Year Ended 12/31/2013 Account Black Company Income Statement Sales Expense Bargain-Purchase-Gain Net Income -360000 254000 -28000 -134000 Statement of Retained Earnings R/E, 1/1/15 Net Income Dividends R/E, 12/31/15 -480000 -134000 36000 -578000 Balance Sheet Current Assets Investment in Blue Co. Land Buildings (net) 346000 528000 120000 480000 Total Assets 1474000 Liabilities Common Stock Additional Paid-in-Capital R/E, 12/31/15 -108000 -292000 -496000 -578000 Total Liabilities & Stockholders Equity -1474000 CalculationCalculation for Potential Goodwill: Consideration transferred by Black Co. Book value of Blue Co. Excess of Cost over Book Value Allocations: Land (204,000 - 108,000) - Bargain Purchase 500000 -432000 68000 -96000 -28000 Debit 14000 528000 Credit 100000 400000 14000 28000 72000 12000 348000 432000 96000 96000 Blue Company Consolidation Entries Dr. Cr. Consolidated Balance -360000 254000 -28000 -134000 -480000 -134000 36000 -578000 120000 108000 336000 (A) 96,000 (S) 432,000 (A) 96,000 466000 0 324000 816000 564000 1606000 -132000 -72000 -12000 -348000 (S) 72,000 (S) 12,000 (S) 348,000 -240000 -292000 -496000 -578000 -564000 528000 Entry (S) Entry (A) Entry (A) Entry (A) 528000 -1606000 Solution-1 Entry to record the acquisition on Black co. books S.No. 1 Account Titles & Explanation Professional fee expense Investment in Blue Co. Common Stock-Black (10,000*10 Par) Additional Paid-in-capital-Black (10,000*$40) Cash Gain on Bargain purchase Entry S 2 Common Stock Additional Paid-in-capital Retained Earning (12/31/2015) Investment in Blue Co. (To eliminate Blue Co's stockholders' equity accounts and the book value of Blue Co's net assets from Black Co's investment account) Entry A 3 Land Investment in Blue Co. (To eliminate Black Co's excess payment over book value from its investment account and reassign the excess to specific assets from the bargain purchase) Solution-2 For the Year Ended 12/31/2013 Account Black Company Income Statement Sales Expense Bargain-Purchase-Gain Net Income -360000 254000 -28000 -134000 Statement of Retained Earnings R/E, 1/1/15 Net Income -480000 -134000 Dividends R/E, 12/31/15 36000 -578000 Balance Sheet Current Assets Investment in Blue Co. Land Buildings (net) Total Assets 346000 528000 120000 480000 1474000 Liabilities Common Stock Additional Paid-in-Capital R/E, 12/31/15 -108000 -292000 -496000 -578000 Total Liabilities & Stockholders Equity -1474000 CalculationCalculation for Potential Goodwill: Consideration transferred by Black Co. Book value of Blue Co. Excess of Cost over Book Value Allocations: Land (204,000 - 108,000) - Bargain Purchase 500000 -432000 68000 -96000 -28000 Debit 14000 528000 Credit (In Question) Kindly check below balance sheet (72,000+12,000+$348,000 = $528,000) 100000 400000 14000 28000 (In Question) 72000 12000 348000 432000 96000 96000 Blue Company 204,000 - 108,000 Consolidation Entries Dr. Cr. 120000 108000 336000 564000 (A) 96,000 -132000 -72000 -12000 -348000 (S) 72,000 (S) 12,000 (S) 348,000 -564000 528000 Entry (S) Entry (A) Entry (A) Entry (A) (S) 432,000 (A) 96,000 528000 Black also paid $14,000 to several attorneys and accountants who assisted in creating this combination. check below balance sheet (72,000+12,000+$348,000 = $528,000) Black also paid $14,000 to several attorneys and accountants who assisted in creating this combination. 204,000 Given in question Consolidated Balance -360000 254000 -28000 -134000 -480000 -134000 36000 -578000 466000 0 324000 816000 1606000 -240000 -292000 -496000 -578000 -1606000