PROBLEM 2 On January 1, 2016, Biden Corp. issued shares of its common stock to acquire...

PROBLEM 2

On January 1, 2016, Biden Corp. issued shares of its common stock to acquire all of the outstanding common stock of Raffie Inc. Raffie’s book value was only $140,000 at the time, but Biden issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. Biden was willing to convey these shares because it felt that buildings (ten-year life) were undervalued on Raffie's records by $60,000 while equipment (five-year life) was undervalued by $25,000. Any consideration transferred over fair value of identified net assets acquired is assigned to goodwill.

Following are the individual financial records for these two companies for the year ended December 31, 2019.

	Biden	Raffie
	Corp.	Inc.
Revenues	$ 372,000	$108,000
Expenses	(264,000)	(72,000)
Equity in subsidiary earnings	25,000	0
Net income	$ 133,000	$ 36,000

Retained earnings, January 1, 2019	$ 765,000	$102,000
Net income (above)	133,000	36,000
Dividends paid	(84,000)	(24,000)
Retained earnings, December 31, 2019	$ 814,000	$114,000

Current assets	$ 150,000	$ 22,000
Investment in Spaulding Inc.	242,000	0
Buildings (net)	525,000	85,000
Equipment (net)	389,250	129,000
Total assets	$1,306,250	$236,000

Liabilities	$ 82,250	$ 50,000
Common stock	360,000	72,000
Additional paid-in capital	50,000	0
Retained earnings, December 31, 2019 (above)	814,000	114,000
Total liabilities and stockholders’ equity	$1,306,250	$236,000

Required:

Prepare a consolidation worksheet for this business combination. Use the format below.

Answer:

Consolidation Worksheet for Biden and Raffie:

CONSOLIDATION WORKSHEET-Acquisition

For the Year Ended 12/31/ 2019

	Rand	Spaulding	Consolidation Entries		Consolidated
Account	Corp.	Inc.	DR	CR	Balance

Solutions

Expert Solution

The Preparation consolidation worksheet for this business combination is prepared below:-

Note:- For computing goodwill we simply deduct the building and equipment from excess over book value.

ekkarill92 answered 1 year ago

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