Question

In: Accounting

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker...

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.

Solutions

Expert Solution

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

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