Question

The separate condensed balance sheet of Patrick Corporation and its wholly-owned subsidiary, Sean Corporation, are as follows:

Balance Sheets December 31, 2020
	Patrick	Sean
Cash	$      80,000	$   60,000
Accounts Receivable (net)	140,000	25,000
Inventories	90,000	50,000
Plant & equipment (net)	625,000	280,000
Investment in Sean	460,000
Total Assets	$ 1,395,000	$ 415,000
Accounts Payable	$ 160,000	$   95,000
Long-term Debt	110,000	30,000
Common Stock ($10 par)	340,000	50,000
Additional paid-in capital		10,000
Retained Earnings	785,000	230,000
Total Liabilities & Stockholders’ Equity	$1,395,000	$415,000

Additional Information:
* On December 31, 2020, Patrick acquired 100% of Sean’s voting stock in exchange for $460,000.
* At the acquisition date, the fair values of Sean’s assets and liabilities equaled their carrying amounts, respectively, except that the fair value of certain items in Sean’s inventory were $25,000 more than their carrying amounts.

1. In the December 31, 2020, consolidated balance sheet of Patrick and its subsidiary, what amount
of total assets should be reported?

2. In the December 31, 2020, consolidated balance sheet of Patrick and its subsidiary, what amount
of total stockholders’ equity should be reported?

Answer 1

1. Total Assets should be reported as follows:

Calculation of Goodwill

Item	Value $
Cash	60,000
Accounts Receivable	25,000
Inventories (Book value + 25,000)	75,000
Plant & equipment	280,000
Total Assets (A)	440,000
Liabilities
Accounts payable	95,000
Long term payable	30,000
Total Liabilities (B)	125,000
Net Assets Acquired (C ) (A-B)	315,000
Cost of acquisition (D)	460,000
Goodwill (D-C)	145,000

The total assets to be reported in the consolidated balance sheet will be as under

Asset	Patrick ($)	Sean ($)	Consolidated ($)
Cash	80,000	60,000	140,000
Accounts Receivable	140,000	25,000	165,000
Inventories	90,000	75,000	165,000
Plant & equipment (net)	625,000	280,000	905,000
Goodwill			142,000
Total			1,517,000

2. Total stockholders’ equity should be reported as follows -

Particulars	Amount $
Total liabilities and shareholders Equity of Patrick	1,395,000
Less: Account Payable	(160,000)
Less: Long term debt	(110,000)
Total stockholders Equity	1,125,000

*Or if you add the common stock and Retained Earning of Patrick you will get same answer. In Stock Holder Equity, we consider the common stock, additional paid up capital and Retained Earnings.

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