With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, KitKat Company acquired a 100% of the outstanding common stock of Nacho, Inc. At the acquisition date, 1/1/20x0, KitKat Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Nacho's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Nacho, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Book Fair Remaining Value Value Useful Life Land $1,700,000 $2,550,000 Buildings 2,700,000 3,400,000 7 years Equipment 3,700,000 3,300,000 5 years KitKat Company uses the equity method to account for the acquisition of Nacho, Inc. and, after the acquisition, Nacho, Inc. will be a separate operating subsidiary of KitKat Company. Required A. Using KitKat and Nacho 12/31/20X20 account balances, 1. Prepare KitKat Company's fye 12/31/20x0 journal entries on their separate company books and records related to their investment in Nacho, Inc. 2. Prepare the worksheet adjusting entries as of December 31, 20x0 necessary to consolidate KitKat Company and Nacho, Inc. 3. Using the given information and an excel worksheet, prepare the worksheet to consolidate KitKat Company and Nacho, Inc. B. For information purposes, the Controller of KitKat Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity transfer of a depreciable asset, i.e. between KitKat and Nacho. Following are the separate financial statements of KitKat and Nacho, Inc. for the year ending 12/31/20x0: Revenues Expenses Equity in income of Nacho, Inc. Net income KitKat Company 298,000,000 271,000,000 8,000,000 35,000,000 Nacho Incorporated 103,750,000 95,800,000 0 7,950,000 Retained earnings, January 1, 20x0 Net income (above) Dividends paid Retained earnings, December 31, 20x0 2,300,000 35,000,000 4,800,000 32,500,000 100,000 7,950,000 3,000,000 5,050,000 20,800,000 Current Assets Investment in Nacho, Inc. Land Buildings Equipment (net) Total assets 24,850,500 22,450,000 1,500,000 5,600,000 3,100,000 57,500,500 1,700,000 2,360,000 2,960,000 27,820,000 3,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec. 31, 20x0 (above) Total liabilities and stockholders' equity 2,900,000 19,000,000 32,500,000 57,500,000 4,900,000 1,000,000 6,000,000 10,870,000 5,050,000 27,820,000 With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, KitKat Company acquired a 100% of the outstanding common stock of Nacho, Inc. At the acquisition date, 1/1/20x0, KitKat Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Nacho's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Nacho, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Book Fair Remaining Value Value Useful Life Land $1,700,000 $2,550,000 Buildings 2,700,000 3,400,000 7 years Equipment 3,700,000 3,300,000 5 years KitKat Company uses the equity method to account for the acquisition of Nacho, Inc. and, after the acquisition, Nacho, Inc. will be a separate operating subsidiary of KitKat Company. Required A. Using KitKat and Nacho 12/31/20X20 account balances, 1. Prepare KitKat Company's fye 12/31/20x0 journal entries on their separate company books and records related to their investment in Nacho, Inc. 2. Prepare the worksheet adjusting entries as of December 31, 20x0 necessary to consolidate KitKat Company and Nacho, Inc. 3. Using the given information and an excel worksheet, prepare the worksheet to consolidate KitKat Company and Nacho, Inc. B. For information purposes, the Controller of KitKat Company asks that you briefly summarize the implications for the consolidation accounting and the consolidating adjusting entries of an intra-entity transfer of a depreciable asset, i.e. between KitKat and Nacho. Following are the separate financial statements of KitKat and Nacho, Inc. for the year ending 12/31/20x0: Revenues Expenses Equity in income of Nacho, Inc. Net income KitKat Company 298,000,000 271,000,000 8,000,000 35,000,000 Nacho Incorporated 103,750,000 95,800,000 0 7,950,000 Retained earnings, January 1, 20x0 Net income (above) Dividends paid Retained earnings, December 31, 20x0 2,300,000 35,000,000 4,800,000 32,500,000 100,000 7,950,000 3,000,000 5,050,000 20,800,000 Current Assets Investment in Nacho, Inc. Land Buildings Equipment (net) Total assets 24,850,500 22,450,000 1,500,000 5,600,000 3,100,000 57,500,500 1,700,000 2,360,000 2,960,000 27,820,000 3,100,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec. 31, 20x0 (above) Total liabilities and stockholders' equity 2,900,000 19,000,000 32,500,000 57,500,000 4,900,000 1,000,000 6,000,000 10,870,000 5,050,000 27,820,000