Question

On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $295,000 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 $26,500 to accountants, lawyers, and brokers for assistance in the acquisition and another $11,500 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	$	63,000			$	29,200
Receivables		306,000				189,000
Inventory		426,000				168,000
Land		207,000				213,000
Buildings (net)		484,000				237,000
Equipment (net)		167,000				73,800
Accounts payable		(221,000	)			(62,700	)
Long-term liabilities		(444,000	)			(295,000	)
Common stock—$1 par value		(110,000	)
Common stock—$20 par value						(120,000	)
Additional paid-in capital		(360,000	)			0
Retained earnings, 1/1/21		(518,000	)			(432,300	)

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 $7,550, Land by $17,600, and Buildings by $25,400. 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, 2021.

Answer 1

Balance sheet before acquisition
Particulars	Marshall co	Tucker co
Cash	63,000	29,200
Receivable	306,000	189,000
Inventory	426,000	168,000
Land	207,000	213,000
Building (net)	484,000	237,000
Equipment (net)	167,000	73,800
Total	1,653,000	910,000
Accounts Payable	221,000	62,700
Long term liabilities	444,000	295,000
Common stock	110,000	120,000
APIC	360,000	-
Retained earnings	518,000	432,300
Total	1,653,000	910,000

Compensation Paid
Particulars	Amount
Long term liabilities	295,000
Common stock	200,000
Total compensation	495,000

Value of Tucker co
Particulars	Amount
Cash	29,200
Receivable	189,000
Inventory	160,450
Land	195,400
Building (net)	211,600
Equipment (net)	73,800
Accounts Payable	-62,700
Long term liabilities	-295,000
Net value of asset	501,750
Compensation paid	495,000
Capital reserve	6,750

Post acquisition entry
Particulars	Debit	Credit
Investment in Tucker co.	495,000
Common stock (20000*1)		20,000
APIC (20000*9)		180,000
Long term liabilities		295,000
Recognize in investment in Tucker co.

Post acquisition Balance sheet
Particulars	Marshall co
Cash	63,000
Receivable	306,000
Inventory	426,000
Land	207,000
Building (net)	484,000
Equipment (net)	167,000
Investment in Tucker co.	495,000
Total	2,148,000
Accounts Payable	221,000
Long term liabilities (444+295)	739,000
Common stock (110+20)	130,000
APIC (360+180)	540,000
Retained earnings	518,000
Total	2,148,000