Question

assume the parent company acquires its subsidiary by exchanging 50000 shares of its $1 par value common stock, with a fair value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an among equaling their book values except for an unrecorded trademark with a fair value of $120,000, an unrecorded video library valued at $300,000 and patented technology with a fair value of $60,000.

a. prepare the journal entry that the parent makes to record the acquisition.

b. given the following acquisition-date balance sheets of the parent and the subsidiary, prepare the consolidation entries.  

Balance sheet	parent	subsidiary
assets
cash	$250,000	$120,000
A/R	200,000	300,000
inventory	300,000	400,000
equity investment	1,500,000
PPE	2,000,000	800,000
	4,250,000	1,620,000
liabilities and stockholders equity
A/P	$200,000	$80,000
Accrued liabilities	250,000	140,000
long term liabilities	1,800,000	500,000
common stock	400,000	100,000
APIC	600,000	200,000
Retained earnings	1,00,000	600,000
	4,250,000	1,620,000

c. prepare the consolidation spreadsheet

d. where were the intangible assets on the parent or subsidiary's balance sheets?

Answer 1

solution ;

IMPORTANT NOTE ; retained earning of parent company read as 10,00,000 in question there are mis print . in the question retained earnings of parent company given $100,000 which is misprint

part A

ACCOUNT TITLE	DEBIT	CREDIT
EQUITY INVESTMENT(50,000 X $30)	15,00,000
COMMON STOCK(50,000 X$1)		50,000
APIC (50,000 X $ 29)		14,50,000
(to record the acquisition )

PART B

ENTRY	ACCOUNT TITLE	DEBIT	CREDIT
[E]	COMMON STOCK	100000
	APIC	200000
	RETAINED EARNINGS	600000
	EQUITY INVESTMENT		900000
	(to eliminate the stock holder's equity of the subsidiary as of the acquisition date)
[A]	TRADE MARK	120000
	VIDEO LIBRARY	300000
	PATENT TECHNOLOGY	60000
	GOODWILL[15,00,000 -120,000 -300000 -60000 - 900000]	120000
	EQUITY INVESTMENT		600000
	(to record the trade mark ,video librfary,patent as intangible assets)

PART C

ELIMINATION ENTRY

PARENT

SUBSIDIARY

DEBIT

CREDIT

CONSOLIDATED

ASSETS
cash	250,000	120,000			370,000
A/R	200,000	300,000			500,000
inventory	300,000	400,000			700,000
equity investment	1,500,000			1500000	0
PPE	2,000,000	800,000			2800000
TRADE MARK			120000		120000
VIDEO LIBRARY			300000		300000
PATENT TECHNOLOGY			60000		60000
GOODWILL			120000		120000
TOTAL	4,250,000	1,620,000			49,70,000
liabilities and stockholders equity
A/P	200,000	$80,000			280,000
Accrued liabilities	250,000	140,000			390,000
long term liabilities	1,800,000	500,000			2300000
common stocK	400,000	100,000	100,000		400,000
APIC	600,000	200,000	200,000		600,000
Retained earnings	10,00,000	600,000	600,000		10,00,000
TOTAL	4,250,000	1,620,000			49,70,000

PART D ;

FOUR intingible assets are recognised in the consolidation process: Trademark, Video Library, Patented Technology and Goodwill. Earlier, they were embedded in the Equity investment account on the Parent’s balance sheet. Now, they are explicitly recognized in the consolidation process.

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