Question

Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries
Assume that the parent company acquires its subsidiary by exchanging 84,000 shares of its $2 par value Common Stock, with a fair value on the acquisition date of $39 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 amount equaling their book values except for an unrecorded Trademark with a fair value of $240,000, an unrecorded Video Library valued at $600,000, and Patented Technology with a fair value of $125,000.

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

General Journal
Description	Debit	Credit
AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
Common stock	Answer	Answer
AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer

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

Balance Sheet						Parent		Subsidiary
Assets
Cash						$514,020		$265,160
Accounts receivable						450,300		633,360
Inventory						650,000		813,540
Equity investment						3,276,000		-
Property, plant & equipment						10,600,000		1,655,140
						$15,490,320		$3,367,200
Liabilities and stockholders' equity
Accounts payable						$150,480		$177,800
Accrued liabilities						176,640		309,400
Long-term liabilities						3,840,000		910,000
Common stock						428,400		232,000
APIC						3,360,000		277,500
Retained earnings						7,534,800		1,460,500
						$15,490,320		$3,367,200

Consolidation Journal
	Description	Debit	Credit
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
[A]	Trademark	Answer	Answer
	Video library	Answer	Answer
	Patented technology	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer

c. Prepare the consolidation spreadsheet.

Consolidation Worksheet
			Parent		Subsidiary			Debit			Credit			Consolidated
Assets
Cash			$514,020		$265,160									Answer
Accounts receivable			450,300		633,360									Answer
Inventory			650,000		813,540									Answer
Equity investment			3,276,000		-					[E]	Answer			Answer
										[A]	Answer
PPE, net			10,600,000		1,655,140									Answer
Trademark							[A]	Answer						Answer
Video library							[A]	Answer						Answer
Patented technology							[A]	Answer						Answer
Goodwill			-		-		[A]	Answer						Answer
			$15,490,320		$3,367,200									Answer
Liabilities and equity
Accounts payable			$150,480		$177,800									Answer
Accrued liabilities			$176,640		$309,400									Answer
Long-term liabilities			$3,840,000		$910,000									Answer
Common stock			$428,400		$232,000		[E]	Answer						Answer
APIC			$3,360,000		$277,500		[E]	Answer						Answer
Retained earnings			$7,534,800		$1,460,500		[E]	Answer						Answer
			$15,490,320		$3,367,200			Answer			Answer			Answer

Answer 1

a.)	General Journal
	Description	Debit $	Credit $
	Equity investment	3,276,000
	Common stock (84,000 x 2 )		168,000
	APIC ( 84,000 x ( 39 - 2 ) )		3,108,000

b.)	Consolidation Journal	Description	Debit $	Credit $
	[E]	Common stock	232,000
		APIC	277,500
		Retained Earnings	1,460,500
		Equity Investment		3,276,000
	[A]	Trademark	240,000
		Video Library	600,000
		Patented Technology	125,000
		Goodwill	341,000

c.)	Consolidation Worksheet							Amount $
		Parent	Subsidiary		Debit		Credit	Consolidated
	Assets
	Cash	514,020	265,160					779,180
	Accounts receivable	450,300	633,360					1,083,660
	Inventory	650,000	813,540					1,463,540
	Equity investment	3,276,000	-			[E]	3,276,000	-
	PPE, net	10,600,000	1,655,140					12,255,140
	Trademark			[A]	240,000			240,000
	Video library			[A]	600,000			600,000
	Patented technology			[A]	125,000			125,000
	Goodwill	-	-	[A]	341,000			341,000
	Total Assets	15,490,320	3,367,200					16,887,520
	Liabilities and equity
	Accounts payable	150,480	177,800					328,280
	Accrued liabilities	176,640	309,400					486,040
	Long-term liabilities	3,840,000	910,000					4,750,000
	Common stock	428,400	232,000	[E]	232,000			428,400
	APIC	3,360,000	277,500	[E]	277,500			3,360,000
	Retained earnings	7,534,800	1,460,500	[E]	1,460,500			7,534,800
	Total Liabilities and equity	15,490,320	3,367,200		3,276,000		3,276,000	16,887,520