Why are the liabilities and shareholders equity accounts represented as negative on the consolidated balance sheet?

 

 

LO 2-7 Prepare a worksheet to consolidate the accounts of two companies that form a business combination in the absence of dissolution. BigNet Company's Financial Records-December 31 Investment in Smallport Company (consideration transferred) Contingent Performance Liability.. Common Stock (26,000 shares issued by BigNet at $10 par value). Additional Paid-In Capital (value of shares in excess of par value).. 2,620,000 20,000 260,000 2,340,000 To record acquisition of Smallport Company, which maintains its separate legal identity. Professional Services Expense. Cash (paid for third-party fees). To record combination costs. 40,000 40,000 As Exhibit 2.6 demonstrates, a worksheet can be prepared on the date of acquisition to arrive at consolidated totals for this combination. The entire process consists of six steps. EXHIBIT 2.6 Acquisition Method-Date of Acquisition page 57 Consolidation Entries Accounts BigNet Smallport Debits Credits Consolidated Totals Income Statement Revenues (1,000,000) Expenses 840,000* (1,000,000) 840,000 Net income (160,000) (160,000) Statement of Retained Earnings Retained earnings, 1/1 (870,000) (870,000) Net income (above) (160,000)* (160,000) Dividends declared 110,000 110,000 Retained earnings, 12/31 (920,000) (920,000) Balance Sheet Current assets 1,060,000* 300,000 1,360,000 Investment in Smallport Company 2,620,000* -0- (S) 600,000 (A) 2,020,000 Computers and equipment 1,300,000 400,000 (A) 200,000 1,900,000 Capitalized software 500,000 100,000 (A) 1,100,000 1,700,000 Customer contracts Goodwill -0- -0- (A) 700,000 700,000 -0- -0- (A) 70,000 70,000 Total assets 5,480,000 800,000 5,730,000 Notes payable (300,000) (200,000) (A) 50,000 (550,000) Contingent performance liability (20,000)* (20,000) Common stock (1,860,000) (100,000) (S) 100,000 (1,860,000) Additional paid-in capital (2,380,000)* Retained earnings, 12/31 (above) (920,000) Total liabilities and equities (5,480,000) (20,000) (S) 20,000 (480,000) (S) 480,000 (800,000) (2,380,000) (920,000) 2,670,000 2,670,000 (5,730,000) Note: Parentheses indicate a credit balance. *Balances have been adjusted for consideration transferred and payment of direct acquisition costs. Also note follow-through effects to net income and retained earnings from the expensing of the direct acquisition costs. (S) Elimination of Smallport's stockholders' equity accounts as of December 31 and book value portion of the investment account. (A) Allocation of BigNet's consideration fair value in excess of book value. Step 1