Question

On January 1, 2018 Casey Corporation exchanged $3,271,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems.

At the acquisition date, Casey prepared the following fair-value allocation schedule:

Fair value of Kennedy (consideration transferred)					$	3,271,000
Carrying amount acquired						2,600,000
Excess fair value					$	671,000
to buildings (undervalued)	$	378,000
to licensing agreements (overvalued)		(188,000	)			190,000
to goodwill (indefinite life)					$	481,000

Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate financial records.

Accounts	Casey				Kennedy
Cash	$	493,000			$	142,500
Accounts receivable		1,315,000				288,000
Inventory		1,460,000				343,500
Investment in Kennedy		3,271,000				0
Buildings (net)		5,812,500				1,930,000
Licensing agreements		0				3,090,000
Goodwill		448,500				0
Total assets	$	12,800,000			$	5,794,000
Accounts payable	$	(380,000	)		$	(384,000	)
Long-term debt		(3,420,000	)			(2,810,000	)
Common stock		(3,000,000	)			(1,000,000	)
Additional paid-in capital		0				(500,000	)
Retained earnings		(6,000,000	)			(1,100,000	)
Total liabilities and equities	$	(12,800,000	)		$	(5,794,000	)

Prepare an acquisition-date consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation. (Negative amounts should be indicated by a minus sign.)

Answer 1

Answer

Consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation:

                                                    Casey Corporation and its subsidiary

                                                        consolidated balance sheet

                                                            As on January 1,2018

	Casey Corporation	Kennedy Corporation	Consolidation
ASSETS
Cash	493,000	142,500	635,500
Accounts receivable	1,315,000	288,000	1,603,000
Inventory	1,460,000	343,500	1,803,500
Investment in Kennedy	3,271,000	0	0
Buildings (net)	5,812,500	1,930,000	8,120,500
Licensing agreements	0	3,090,000	2,902,000
Goodwill	448,500	0	929,500
Total assets	12,800,000	5,794,000	15,994,000
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable	(380,000)	(384,000)	(764,000)
Long-term debt	(3,420,000)	(2,810,000)	(6,230,000)
Total Liabilities:	(3,800,000)	(3,194,000)	(6,994,000)
Stockholder's Equity:
Common stock	(3,000,000)	(1,000,000)	(3,000,000)
Additional paid-in capital	0	(500,000)	0
Retained earnings	(6,000,000)	(1,100,000)	(6,000,000)
Total Stockholder's Equity	(9,000,000)	(2,600,000)	(11,600,000)
Total liabilities and equities	(12,800,000)	(5,794,000)	(15,994,000)

Working Note

1.Consolidated balance for corporation C's investment in Corporation k will be zero.

2.Consolidated balance for buliding (net)=5,812,500+1,930,000+378,000 = 8,120,500

3.Consolidated balance for Licensing agreements=(0+3,090,000)-188,000

4. Consolidated balance for Goodwill= (448,500+481,000)= 929,500

5.Remaing item have been obtained by simply adding the balance of these item for the two companies.