Question

On January 1, 2021, Casey Corporation exchanged $3,250,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems.

At the acquisition date, Casey prepared the following fair-value allocation schedule:

Fair value of Kennedy (consideration transferred)				$	3,250,000
Carrying amount acquired					2,600,000
Excess fair value				$	650,000
to buildings (undervalued)	$	342,000
to licensing agreements (overvalued)		(160,000	)		182,000
to goodwill (indefinite life)				$	468,000

Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate financial records (credit balances in parentheses).

Accounts	Casey				Kennedy
Cash	$	500,000			$	176,250
Accounts receivable		1,410,000				345,000
Inventory		1,585,000				375,750
Investment in Kennedy		3,250,000				0
Buildings (net)		5,722,500				1,990,000
Licensing agreements		0				3,070,000
Goodwill		693,500				0
Total assets	$	13,161,000			$	5,957,000
Accounts payable	$	(391,000	)		$	(377,000	)
Long-term debt		(3,770,000	)			(2,980,000	)
Common stock		(3,000,000	)			(1,000,000	)
Additional paid-in capital		0				(500,000	)
Retained earnings		(6,000,000	)			(1,100,000	)
Total liabilities and equities	$	(13,161,000	)		$	(5,957,000	)

Prepare an acquisition-date consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation. (For accounts where multiple consolidation entries are required,combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.)

Answer 1

Consolidate balance sheet for Casey corporation and its subsidiary Kennedy Corporation as on January 1, 2021

	Casey corporation	Kennedy Corporation	Adjustments	Eliminations	Consolidation
Assets
Cash	500,000	176,250			676,250
Accounts receivable	1,410,000	345,000			1,755,000
Inventory	1,585,000	375,750			1,960,750
Investment in Kennedy	3,250,000	0		3,250,000	0
Buildings(net)	5,722,500	1,990,000	342,000		8,054,500
Licensing agreements	0	3,070,000		160,000	2,910,000
Good will	693,500	0	468,000		1,161,500
Total assets	13,161,000	5,957,000			16,518,000
Liabilities and stock holder's equity
Liabilities:
Accounts payable	-391,000	-377,000			768,000
Long term debt	-3,770,000	-2,980,000			6,750,000
Total liabilities	-4,161,000	-3,357,000			7,518,000
Stockholder's equity
Common stock	-3,000,000	-1,000,000	1,000,000		3,000,000
Additional paid in capital	0	-500,000	500,000		0
Retained earnings	-6,000,000	-1,100,000	1,100,000		6,000,000
Total stockholder's equity	-9,000,000	-2,600,000			9,000,000
Total liabilities and equities	-13,161,000	-5,957,000	3,410,000	3,410,000	16,518,000

1.Consolidated balance for corporation Casey's investment in Kennedy Corporation will be zero.Working Notes -

2.Consolidated balance for building (net) = 5,722,500 + 1,990,000 + 342,000 = 8,054,500

3.Consolidated balance for Licensing agreements = ( 0 + 3,070,000 ) - 160,000 = 2,910,000

4. Consolidated balance for Goodwill= ( 693,500 + 468,000 ) = 1,161,500

5.Remaining items have been obtained by simply adding the balance of these item for the two companies.

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