Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $265,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $29,500 to accountants, lawyers, and brokers for assistance in the acquisition and another $14,500 in connection with stock issuance costs.

Prior to these transactions, the balance sheets for the two companies were as follows:

	Marshall Company Book Value				Tucker Company Book Value
Cash	$	60,600			$	31,200
Receivables		295,000				108,000
Inventory		413,000				177,000
Land		243,000				191,000
Buildings (net)		491,000				262,000
Equipment (net)		230,000				72,300
Accounts payable		(162,000	)			(62,400	)
Long-term liabilities		(501,000	)			(265,000	)
Common stock—$1 par value		(110,000	)
Common stock—$20 par value						(120,000	)
Additional paid-in capital		(360,000	)			0
Retained earnings, 1/1/18		(599,600	)			(394,100	)

Note: Parentheses indicate a credit balance.

In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $5,000, Land by $14,400, and Buildings by $25,000. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.

To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

Complete this question by entering your answers in the tabs below.

Required A

Required B

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Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.

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	Consolidated Totals Cash Receivables Inventory Land Buildings (net) Equipment (net) Total assets $0 Accounts payable Long-term liabilities Common stock Additional paid-in capital Retained earnings Total liabilities and equities $0

To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018. (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.)

MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY Worksheet January 1, 2018 Accounts Marshall Company Tucker Company Consolidation Entries Consolidated Totals Debit Credit Cash Receivables Inventory Land Buildings (net) Equipment (net) Investment in Tucker Total assets $0 $0 $0 Accounts payable Long-term liabilities Common stock Additional paid-in capital Retained earnings, 1/1/18 Total liabilities and owners' equities $0 $0 $0 $0 $0

Answer 1

Part a Consolidated balance sheet as on January 1, 2018

Particulars	Consolidated Totals
Cash	47800
Receivables	403000
Inventory	585000
Land	419600
Buildings (net)	728000
Equipment (net)	302300
Total assets	$2,485,700
Accounts payable	224400
Long-term liabilities	1031000
Common stock	130000
Additional paid-in capital	540000
Retained earnings	560300
Total liabilities and equities	$2,485,700

Part b working notes.

MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY
Worksheet
January 1, 2018
Accounts	Marshall Company	Tucker Company	Consolidation Entries		Consolidated Totals
			Debit	Credit
Cash	16,600	31,200			47,800
Receivables	295,000	108,000			403,000
Inventory	413,000	172,000			585,000
Land	243,000	176,600			419,600
Buildings (net)	491,000	237,000			728,000
Equipment (net)	230,000	72,300			302,300
Investment in Tucker
Total assets	1,688,600	797,100	-	-	2,485,700
Accounts payable	162,000	62,400			224,400
Long-term liabilities	501,000	265,000		265,000	1,031,000
Common stock	110,000	120,000	120,000	20,000	130,000
Additional paid-in capital	360,000			180,000	540,000
Retained earnings, 1/1/18	555,600	349,700	349,700	4,700	560,300
Total liabilities and owners' equities	1,688,600	797,100	469,700	469,700	2,485,700

Additional working notes for study

Net assets taken over	As per books	Adjustment	Fairvalue
Cash	31,200		31,200
Receivables	108,000		108,000
Inventory	177,000	(5,000)	172,000
Land	191,000	(14,400)	176,600
Buildings (net)	262,000	(25,000)	237,000
Equipment (net)	72,300		72,300
Accounts payable	(62,400)		(62,400)
Long-term liabilities	(265,000)		(265,000)
Total	514,100	(44,400)	469,700

Fair value of consideration given	$
Liability	265,000
Common stock (fair value $10 each)	200,000
Fair value of consideration	465,000

Net assets taken over more than fair value of consideration $ 4,700 is adjusted aginst retained earnings in Marshall consolidated balance sheet

Assets write down is accounted in Tucker balance sheet and reduced Tucker retained earnings to that extent.

Marshall paid 29,500+14,500 = 44,000 as transactions costs, the same reduces cash and results in equity reduction

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