Question

On January 1st 2020 The Skywalker and Vadar Companies had the following balance sheets:

	Skywalker	Vadar
cash	2,000,000	50,000
accounts receivable	1,000,000	80,000
inventory	1,000,000	50,000
equipment	1,000,000	100,000
accumulated depreciation	500,000	50,000
land	1,000,000	100,000
total assets	5,500,000	330,000
accounts payable	1,000,000	40,000
jcommon stock $1 par	2,000,000	100,000
apic common stock	1,000,000	100,000
retained earnings	1,500,000	90,000

On January 2nd Skywalker acquired all of the outstanding stock of Vadar Company for 500,000 shares of common stock. On January 2nd Skywalker stock was selling for $2 per share.

On January 1st the fair market value of Vadar's land was $125,000; the fair market value of their inventory was $130,000; the fair market value of the equipment was $30,000; other assets and liabilities had a fair market value equal to book value

REQUIRED:

1. MAKE THE JOURNAL ENTRY SKYWALKER MAKES WHEN IT ACQUIRES THE VADAR STOCK
2. MAKE THE JOURNAL ENTRY VADAR MAKES WHEN ITS STOCK IS ACQUIRED BY SKYWALKER
3. PREPARE A CONSOLIDATED BALANCE SHEET ON JANUARY 2^ND
4. MAKE THE NECESSARY WORKSHEET ENTRIES NEEDED TO PREPARE THE CONSOLDIATED BALANCE SHEET.

Answer 1

Net asset Value
Common stock	100000
APIC	100000
Retained earnings	90000
Net assets at book value	290000
Excess fair value
Land	25000
Inventory	80000
Equipment	-20000
	85000
Net assets at fair value	375000
Purchase price
Common stock	500000
APIC	500000
Goodwill	625000

Acquiring company
Equity method
Investment in Vadar	1000000
To common stock		500000
To APIC		500000
Purchase method
Cash	50000
Accounts receivable	80000
Inventory	130000
Equipment	30000
land	125000
Goodwill	625000
To accounts payable		40000
To Share capital		500000
To APIC		500000
Acquired company
Equity method
No entry as only share acquired
Purchase method
Realisation A/c	330000
To cash		50000
To accounts receivable		80000
To inventory		50000
To equipment		50000
To land		100000
Accounts payable	40000
To realisation a/c		40000
Common stock of Skywalk	500000
APIC skywalk	500000
To realisation a/c		1000000
Equity share capital	100000
APIC	100000
Retained earnings	90000
To Shareholder's account		290000
Realisation a/c	710000
To Shareholder's account		710000
Shareholder's account	1000000
To common stock of skywalk		500000
To APIC		500000

Consolidation balancesheet (purchase method)
			Adjustment entries		Consolidated
	Skywalk	Vadar
Cash	2000000	50000			2050000
Accounts receivable	1000000	80000			1080000
Inventory	1000000	50000	80000		1130000
Equipment	1000000	100000		20000	1080000
Accumulated depreciation	-500000	-50000			-550000
Land	1000000	100000	25000		1125000
Goodwill			625000		625000
Total Assets	5500000	330000			6540000
Accounts payable	1000000	40000			1040000
Common stock at par	2000000	100000	100000	500000	2500000
APIC	1000000	100000	100000	500000	1500000
retained earnings	1500000	90000	90000		1500000
	5500000	330000			6540000
Consolidation balancesheet (equity method)
			Adjustment entries		Consolidated
	Skywalk	Vadar
Cash	2000000	50000			2050000
Accounts receivable	1000000	80000			1080000
Inventory	1000000	50000	80000		1130000
Equipment	1000000	100000		20000	1080000
Accumulated depreciation	-500000	-50000			-550000
Land	1000000	100000	25000		1125000
Goodwill			625000		625000
Investment in Vadar	1000000			1000000	0
Total Assets	6500000	330000			6540000
Accounts payable	1000000	40000			1040000
Common stock at par	2500000	100000	100000		2500000
APIC	1500000	100000	100000		1500000
retained earnings	1500000	90000	90000		1500000
	6500000	330000			6540000
Elimination entries
Common stock	100000
APIC	100000
Retained earnings	90000
Land	25000
Inventory	80000
Goodwill	625000
To Equipment		20000
To investment in Vadar		1000000