Question
In: Accounting
Patrio Corporation acquired 100 percent of Aloe Corporation’s common stock on December 31, 2019, for $280,000....
- Patrio Corporation acquired 100 percent of Aloe Corporation’s common stock on December 31, 2019, for $280,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
|
Item |
Patrio |
Aloe |
|
Corporation |
Corporation |
|
|
Cash |
$55,000 |
$48,000 |
|
Accounts Receivable |
83,000 |
110,000 |
|
Inventory |
310,000 |
167,000 |
|
Property & Plant (net) |
200,000 |
105,000 |
|
Investment in Aloe Corporation Stock |
280,000 |
|
|
Total Assets |
$928,000 |
$430,000 |
|
Accounts Payable |
$109,000 |
$43,000 |
|
Notes Payable |
235,000 |
90,000 |
|
Common Stock |
300,000 |
102,000 |
|
Retained Earnings |
284,000 |
195,000 |
|
Total Liabilities & Stockholders’ Equity |
$928,000 |
$430,000 |
At the date of the business combination, Aloe’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $155,000, and Property & Plant (net), which had a fair value of $165,000.
Give the elimination entry or entries and prepare a consolidation balance sheet worksheet immediately following the business combination.
Solutions
Expert Solution
Balance Sheet is prepared along with the working notes wherever required.
Consolidated Balance Sheet of Patrio Corporation and its Subsidiary Aloe
as at December 31, 2019.
| S. No | Particulars | Working Note | Amount |
| A. | Assets | ||
| Cash (55,000 + 48,000) | 103,000 | ||
| Accounts Receivables (83,000 + 110,000) | 193,000 | ||
| Inventory (310,000 + 155,000) | 465,000 | ||
| Property and Plant ( 200,000 + 165,000) | 365,000 | ||
| Total | 11,26,000 | ||
| B. | Equity and Liabilities | ||
| Liabilities | |||
| Accounts Payable (109,000 + 43,000) | 152,000 | ||
| Notes Payable (235,000 + 90,000) | 325,000 | ||
| Equity | |||
| Common Stock | 300,000 | ||
| Retained Earnings | 284,000 | ||
| Capital Reserve | 3 | 65,000 | |
| Total | 11,26,000 |
Working Note:
1) Shareholding Pattern
Patrio Corporation's Share = 100%
2) Analysis of Retained Earnings of Subsidiary Company (Aloe):
| Particulars | Pre Acquisition Retained Earnings | Post Acquisition of Retained Earnings |
| A. Balance | 195,000 | - |
| Add: Revaluation Profit | 48,000 | - |
| Total | 2,43,000 | 0 |
| Patrio's Share (100%) | 243,000 | |
Revaluation Loss on Inventory = 167,000 - 155,000 = 12,000
Revaluation Profit on Property and Plant = 165,000 - 105,000 = 60000
Net Profit on Revaluation = 48,000
3) Calculation of Goodwill or Capital Reserve
A. Share in Share Capital(at Face Value) = 102,000
Less : Cost of Acquisition (Cost of Acquisition - Pre Acquisition Retained Earnings) (280,000 - 243,000) = 37,000
Capital Reserve = 65,000
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