Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $326,000 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 $28,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $13,000 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	$	68,700			$	22,600
Receivables		341,000				155,000
Inventory		370,000				212,000
Land		249,000				254,000
Buildings (net)		499,000				270,000
Equipment (net)		196,000				52,500
Accounts payable		(217,000	)			(41,100	)
Long-term liabilities		(481,000	)			(326,000	)
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		(555,700	)			(479,000	)

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 $7,250, Land by $20,200, and Buildings by $34,600. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

1. 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.
2. 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.

Answer 1

BUSINESS PURCHASE A/C………………………………………..DR	$200,000
TO TUCKER COMPANY A/C		$200,000
CASH A/C……………………………………………………………DR	$22,600
RECEIVABLES A/C……………………………………………….DR	$155,000
INVENTORY A/C…………………………………………………DR($212000-$7250)	$204,750
LAND A/C…………………………………………………………..DR($254000-$20200)	$233,800
BUILDING A/C…………………………………………………….DR($270000-$34600)	$235,400
EQUIPMENT A/C……………………………………………….DR	$52,500
TO ACCOUNTS PAYABLE A/C		$41,100
TO LONG TERM LIABILITIES A/C		$326,000
TO BUSINESS PURCHASE A/C		$200,000
TO CAPITAL RESERVE A/C		$336,950
(BALANCING FIGURE)
TUCKER COMPANY A/C…………………………….DR	$200,000
TO EQUITY SHARE CAPITAL A/C		$200,000
LONG TERM LIABILITIES A/C………………………………..DR	$326,000
TO NEW LONG TERM DEBT A/C		$326,000
SHARE ISSUE EXPENSES A/C…………………………DR	$13,000
TO CASH A/C		$13,000
LEGAL EXPENSES A/C ……………………………………..DR	$28,000
TO CASH A/C		$28,000
CAPITAL RESERVE A/C………………………………………….DR	$336,950
TO SHARE ISSUE EXPENSE A/C		$13,000
TO LEGAL EXPENSES A/C		$28,000
TO RETAINED EARNINGS A/C		$295,950

POST ACQUISITION POSITION
	MARSHALL	TUCKER	COMBINED
CASH	$27,700	$22,600	$50,300
RECEIVABLES	$341,000	$155,000	$496,000
INVENTORY	$370,000	$204,750	$574,750
LAND	$249,000	$233,800	$482,800
BUILDING (NET)	$499,000	$235,400	$734,400
EQUIPMENT (NET)	$196,000	$52,500	$248,500
			$2,586,750
ACCOUNTS PAYABLE	$217,000	$41,100	$258,100
LONG TERM LIABILITIES	$481,000	$326,000	$807,000
COMMON STOCK (INCLUDIN NEW 20000 SHARES @$10 PER SHARE)	$310,000		$310,000
ADDITIONAL CAPITAL	$360,000		$360,000
RETAINED EARNINGS	$555,700	$295,950	$851,650
			$2,586,750