Question

On January 1, 2015, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $206,700 in long-term liabilities and 26,500 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $36,600 to accountants, lawyers, and brokers for assistance in the acquisition and another $25,650 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	$	68,000	$	10,650
Receivables		314,000		104,850
Inventory		356,000		196,000
Land		229,000		282,000
Buildings (net)		436,000		221,000
Equipment (net)		203,000		57,500
Accounts payable		(177,000)		(64,000)
Long-term liabilities		(513,000)		(261,000)
Common stock—$1 par value		(110,000)
Common stock—$20 par value				(120,000)
Additional paid-in capital		(360,000)		0
Retained earnings, 1/1/15		(446,000)		(427,000)

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 $7,050, Land by $26,400, and Buildings by $36,750. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

    

a.	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.

          

b.	Prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2015. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

     

Answer 1

On January 1, 2015, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $206,700 in long-term liabilities and 26,500 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $36,600 to accountants,