Question

On January 1, 2020, Canyon Creek Company acquired Smoltz Corporation by issuing 50,000 shares of its $1 par common stock with a market value of $12 per share. A building on Smoltz’s books was undervalued by $50,000, resulting in annual amortization of $5,000. Also, there was an unrecorded patent valued at $80,000, resulting in annual amortization of $8,000. The separate 2020 financial statements for Canyon Creek and Smuckerman are presented below.

	Canyon Creek Co.	Smuckerman Corp.
Sales revenue	$850,000	$380,000
Cost of goods sold	-505,000	-234,000
Gross profit	345,000	146,000
Operating expenses	-300,600	-26,500
Equity income	106,500	_
Net Income	$150,900	$119,500
Retained Earnings, 1/1/20	$800,000	$305,600
Net income	150,900	119,500
Dividends	-45,000	-25,000
Retained Earnings, 12/31/20	$905,900	$400,100
Cash and receivables	$250,000	$158,000
Inventory	350,000	42,600
Equity investment	681,500
Property, plant & equipment (Net)	1,165,100	474,100
Total Assets	$2,446,600	$674,700
Accounts payable	$426,000	$45,000
Accrued liabilities	54,700	28,000
Notes payable	0	125,000
Common stock	75,000	46,600
Additional paid-in capital	985,000	30,000
Retained Earnings, 12/31/20	905,900	400,100
Total Liabilities and Equities	$2,446,600	$674,700

Required: Prepare Consolidated Spreadsheet

Answer 1

Consolidated profit and loss account

Particulars		Amount	Particulars	Amount
Cost of goods sold (505,000+234,000)		739,000	Sales revenue (850,000+380,000)	1,230,000
Gross profit		491,000
Operating expenses
Canyon Creek Co.	300,600
Smuckerman Corp.	26.500
Additional depreciation on building	5,000
Additional depreciation on patent	8,000	340,100
Net profit		150,900

Consolidated Balance Sheet

Liabilities		Amount	Assets	Amount
Accounts payable (426,000+45,000)		471,000	Cash and receivables (250,000+158,000)	408,000
Accrued liabilities (54,700+28,000)		82,700	Inventory (350,000+42,600)	392,600
Notes payable		125,000	Goodwill (as per working below)	87,800
Common stock (Canyon Creek Co.)		75,000	Property, plant & equipment (net) (1,165,100+474,100+50,000+80,000-5,000-8,000)	1,756,200
Additional paid in capital (Canyon Creek Co.)		985,000
Retained earnings
Canyon Creek Co. as on 01 January 2020	800,000
Net income	150,900
Less: Dividend	45,000	905,900
		2,644,600		2,644,600

Notes:

1. Goodwill calculation

Cost of investment	50,000* 12	600,000
Less:
Net assets as on the date of acquisition:
Retained earnings as on 1 January 2020	305,600
Common stock	46,600
Additional paid in capital	30,000	382,200
Acquisition adjustment:
Undervalued building		50,000
Unrecorded patent		80,000
Goodwill on acquisition		87,800

2. Since Canyon Creek Co. acquired 100% of Smuckerman Corp., therefore, equity investment in the books of Canyon Creek Co. and Common stock and additional paid in capital of Smuckerman Corp. are eliminiated.