Question

On January 1, 2018, 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 $23,500 to accountants, lawyers, and brokers for assistance in the acquisition and another $8,500 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	$	87,000			$	24,800
Receivables		314,000				147,000
Inventory		393,000				171,000
Land		230,000				268,000
Buildings (net)		480,000				221,000
Equipment (net)		190,000				63,000
Accounts payable		(214,000	)			(46,500	)
Long-term liabilities		(526,000	)			(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, 1/1/18		(484,000	)			(433,300	)

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 $8,350, Land by $16,000, and Buildings by $30,200. 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.

Answer 1

PART A
cash		$79,800
receivables		$461,000
inventory		$572,350
land		$514,000
buildings		$731,200
equipment		$253,000
total assets		$2,611,350
accounts payable		$260,500
long-term liabilities		$1,116,000
common stock		$130,000
additional paid in capital		$531,500
retained earnings		$573,350
total liabilities and equities		$2,611,350

part B
MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY
Worksheet
Accounts	Marshall company	tucker company	consolidated entries		consolidated totals
			debit	credit
cash	$55,000	$24,800			$79,800
receivables	$314,000	$147,000			$461,000
inventory	$393,000	$171,000	$8,350		$572,350
land	$230,000	$268,000	$16,000		$514,000
buildings (net)	$480,000	$221,000	$30,200		$731,200
equipment (net)	$190,000	$63,000			$253,000
investment in tucker	$607,850			-$607,850	$0
total assets	$2,269,850	$894,800			$2,611,350
accounts payable	-$214,000	-$46,500			-$260,500
long-term liabilities	-$821,000	-$295,000			-$1,116,000
common stock	-$130,000	-$120,000	$120,000		-$130,000
additional paid in capital	-$555,850	$0			-$555,850
retained earnings 1/1/2018	-$549,000	-$433,300	$433,300		-$549,000
Total liabilitiesand owners' equities	-$2,269,850	-$894,800	$607,850	-$607,850	-$2,611,350