Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $313,000 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 $23,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $8,000 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	$	87,700			$	33,200
Receivables		298,000				125,000
Inventory		414,000				238,000
Land		206,000				212,000
Buildings (net)		463,000				276,000
Equipment (net)		223,000				79,500
Accounts payable		(195,000	)			(60,900	)
Long-term liabilities		(500,000	)			(313,000	)
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		(525,700	)			(469,800	)

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 $7,650, Land by $28,800, and Buildings by $37,000. 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. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.

b) 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

A	The amounts that Marshall Company would report in its postacquisition balance sheet
		Consolidated Totals
	Cash	89900
	Receivables	423000
	Inventory	644350
	Land	389200
	Buildings (net)	702000
	Equipment (net)	302500
	Total Assets	2550950
	Accounts payable	-255900
	Long term liabilities	-1126000
	Common Stock	-130000
	APIC	-532000
	Retained Earnings	-507050
	Total liabilities and equity	-2550950
	Adjustments made to retained earnings
	Retained Earnings, 1/1	$526,700
	Add: Gain on bargain purchase	$3,350
	Less: Combination cost	($23,000)
	Retained Earning post acquisition	$507,050
	Stock issuance cost will be adjusted/debited to APIC
	Consideration paid for acquisition	$513,000
	Less:
	Common stock	$120,000
	Retained earnings	$469,800
	Gain on purchase bargain/negative goodwill	($76,800)
	Negative goodwill used to undervalued assets
	Inventory	($7,650)
	Building	($37,000)
	Land	($28,800)
	Gain on business combination	($3,350)
2	Consolidation worksheet			Consolidation entries
	Accounts	Marshall	Tucker	Debit	Credit	Consolidated Totals
	Cash	$56,700	$33,200			$89,900
	Receivables	$298,000	$125,000			$423,000
	Inventory	$414,000	$238,000		$7,650	$644,350
	Land	$206,000	$212,000		$28,800	$389,200
	Buildings (net)	$463,000	$276,000		$37,000	$702,000
	Equipment (net)	$223,000	$79,500			$302,500
	Investment in Tucker	$513,000			$513,000	$0
	Total Assets	$2,173,700	$963,700			$2,550,950
	Accounts payable	($195,000)	($60,900)			($255,900)
	Long term liabilities	($813,000)	($313,000)			($1,126,000)
	Common Stock	($130,000)	($120,000)	$120,000		($130,000)
	APIC	($532,000)				($532,000)
	Retained Earnings	($503,700)	($469,800)	$469,800	$3,350	($507,050)
	Total liabilities and equity	($2,173,700)	($963,700)	$589,800	$589,800	($2,550,950)
	Dear student, in the data you provided, there was a difference of $1000 in Marshall's Book value, prior to acquisition
	I adjusted that in retained earnings. Please check