Question

Company A acquired 100% of Company B's voting stock on January 1, 2018 by issuing 10,000 shares of its $10 par value common stock.

Company A's common stock had a fair value of $14 per share at that time. CompanyB's stockholder's equity was $105,000 (book value) at date of acquisition.

The trademark was undervalued by $10,000. It has an indefinite life. Equipment (with a 5 year life) was undervalued by $5,000. A customer list that had been created internally had an estimated useful life of 20 years was valued at $20,000.

Following are the financial statements for the two companies for the year ending December 31, 2018. Credit balances are indicated by (parentheses).

Complete the trial balance of A Company (calculate income of sub and investment in sub) by using the three different investing accounting methods;

Equity, Intial Value, and Partial Equity

Then, continue by preparing a consolidated worksheet for year

ended Dec. 31, 2018. Include your consolidation and elimination

entries in journal form with the work. A Company 　 B Company Revenues 485,000 (190,000) COGS 160,000     70,000 Depreciation Exp 130,000     52,000 Net Income 　 　    (68,000) R/E, 1/1 609,000    (40,000) Net income (above)    (68,000) Dividends paid 175,500     40,000 R/E, 12/31 　    (68,000) Cash 268,000     17,000 Trademark 427,500     58,000 Buildings & Eqp (net) 713,000    161,000     Total Assets 　 　    236,000 Liabilities 190,000 (103,000) Common Stock 600,000    (60,000) APIC (90,000)     (5,000) R/E (above)    (68,000)     Total Liabilities & Equity 　 　 (236,000)

Answer 1

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Part A
Consideration Transferred			$     140,000
Less: Book value			$    -105,000
Investment Balance at Dec 31 2018			$        35,000
Amortization:
				Life	Amortization
Equipment			$          5,000	5 Years	$          1,000
Trademark			$        10,000
Customer List			$        20,000	20 Years	$          1,000
Amortization			$        35,000		$          2,000
Part B
				Consolidation Entries
Income Statement	Allison	Mathias	Debit		Credit		Consolidated
Sales	$                -485,000	$   -190,000					$     -675,000
Cost of goods sold	$                  160,000	$       70,000					$       230,000
Depreciation expense	$                  130,000	$       52,000	E	$        1,000			$       183,000
Amortization expense			E	$        1,000			$           1,000
							$                 -
Equity Income $68,000-$2,000	$                   -66,000	$               -	I	$     66,000			$                 -
Net income	$                -261,000	$     -68,000					$     -261,000
Statement of Retained Earnings
Retained earnings 1/1	$                -609,000	$     -40,000	C	$     40,000			$     -609,000
Net income (above)	$                -261,000	$     -68,000					$     -261,000
Dividends declared	$                  175,500	$       40,000			D	$     40,000	$       175,500
Retained earnings 12/31	$                -694,500	$     -68,000					$     -694,500
Balance Sheet
Cash	$                  268,000	$       17,000					$       285,000
							$                 -
							$                 -
Investment in Subs	$                  166,000		D	$     40,000	C	$   105,000	$                 -
					A	$     35,000
					I	$     66,000
Building and Equipment	$                  713,000	$     161,000	A	$        5,000	E	$        1,000	$       878,000
Trademark	$                  427,500	$       58,000	A	$     10,000	E		$       495,500
Customer List			A	$     20,000	E	$        1,000	$         19,000
							$                 -
Total assets	$               1,574,500	$     236,000					$    1,677,500
Liabilities	$                -190,000	$   -103,000					$     -293,000
							$                 -
							$                 -
Common stock	$                -600,000	$     -60,000	C	$     60,000			$     -600,000
APIC	$                   -90,000	$        -5,000	C	$        5,000			$        -90,000
Retained earnings 12/31	$                -694,500	$     -68,000					$     -694,500
Total liabilities and equity	$             -1,574,500	$   -236,000		$7,130,000	$   7,130,000		$ -1,677,500