24. (20 Minutes) (Determine selected consolidated balances)
Under the acquisition method, the shares issued by Wisconsin are recorded at
fair value using the following journal entry:
Investment in Badger (value of debt and shares issued). 900,000
Common Stock (par value)……………………..…………….… 150,000
Additional Paid-In Capital……………..…………….…..…..…..…. 40,000
Cash ………………..………..……….………..………..………..…... 70,000
Allocation of Acquisition-Date Excess Fair Value:
Consideration transferred (fair value) for Badger Stock $900,000
Book Value of Badger, 6/30……………….……….……………..…. 770 ,000
Net income (adjusted for professional services expense. The
figures earned by the subsidiary prior to the takeover
are not included)…………………..………..……….………..………..……. $ 210,000
Retained earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included)…………..…..…..…..….... 800,000
Additional Paid-in Capital (the parent’s book value
after recording the two entries above)……………….……….…..… 680,000
25. (20 minutes) (Preparation of a consolidated balance sheet)*
CASEY COMPANY AND CONSOLIDATED SUBSIDIARY KENNEDY
Worksheet for a Consolidated Balance Sheet
January 1, 2015
Casey Kennedy Adjust. & Elim. Consolidated
Cash 457,000 172,500 629,500
Accounts receivable 1,655,000 347,000 2,002,000
Inventory 1,310,000 263,500 1,573,500
Investment in Kennedy 3,300,000 -0- (S) 2,600,000
(A) 700,000 -0-
Buildings (net) 6,315,000 2,090,000 (A) 382,000 8,787,000
Licensing agreements -0- 3,070,000 (A) 108,000 2,962,000
Accounts payable (394,000) (393,000) (787,000)
Long-term debt (3,990,000) (2,950,000) (6,940,000)
Common stock (3,000,000) (1,000,000) (S) 1,000,000 (3,000,000)
Additional paid-in cap. -0- (500,000) (S) 500,000 -0-
Retained earnings (6 ,000,000) (1 ,100,000) (S) 1 ,100,000 (6 ,000,000)
*Although this solution uses a worksheet to compute the consolidated amounts, the
problem does not require it.
26. (50 Minutes) (Determine consolidated balances for a bargain purchase.)
a. Marshall’s acquisition of Tucker represents a bargain purchase because
the fair value of the net assets acquired exceeds the fair value of the
consideration transferred as follows:
Fair value of net assets acquired $515,000
In a bargain purchase, the acquisition is recorded at the fair value of the
Investment in Tucker……………….………..……..….…... 515,000
Long-term Liabilities…………….………..……….………..………..…... 200,000
Common Stock (par value)…………………………….…..….…..…... 20,000
26. (continued)
Professional Services Expense…..…..…..…..…... 30,000
Cash ………………..………..……….………..………… 30,000
(to record payment of professional fees)
Additional Paid-In Capital……………..……….…..…. 12,000
Cash ………………..………..……….………..………… 12,000
(To record payment of stock issuance costs)
Marshall’s trial balance is adjusted for these transactions (as shown in the
worksheet that follows).
Book value (assets minus liabilities or
total stockholders’ equity)…………..………..……..…..….…..…. 460 ,000
Book value in excess of consideration transferred ......... (60,000)
Allocation to specific accounts based on fair value:
Inventory…………………..………..……….………….…..….... 5,000
CONSOLIDATED TOTALS
Cash = $38,000. Add the two book values less acquisition and stock issue
costs
Receivables = $360,000. Add the two book values.
Inventory = $505,000. Add the two book values plus the fair value
adjustment
Total assets = $2,183,000. Summation of the above individual figures.
Accounts payable = $190,000. Add the two book values.
Long-term liabilities = $830,000. Add the two book values plus the debt
incurred by the parent in acquiring the subsidiary.
Common stock = $130,000.The parent’s book value after stock issue to
acquire the subsidiary.
26. (continued)
b. MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY
Worksheet
January 1, 2015
Marshall Tucker Consolidation Entries Consolidated
Accounts Company* Company Debit Credit Totals
Inventory ………..………..…………… 360,000 140,000 (A) 5,000 505,000
Land ………………….…..…..…..….... 200,000 180,000 (A) 20,000 400,000
Buildings (net) …………..………….. 420,000 220,000 (A) 30,000 670,000
Equipment (net) ….…..…..…..…... 160,000 50,000 210,000
Investment in Tucker ….…..…..… 515,000 (S) 460,000
(A) 55,000 -0-
Total assets ……..…..…..…..…..…. 1,943,000 700,000 2,183,000
Accounts payable…………..…..…. (150,000) (40,000) (190,000)
Long-term liabilities …............... (630,000) (200,000) (830,000)
27. (Prepare a consolidated balance sheet)
Consideration transferred at fair value………….….…..… $495,000
Book value ……..………..………..……….……………….…..….. 265,000
Excess fair over book value…………..……….…………..….. 230,000
Allocation of excess fair value to
to notes payable………..………..…………..…..…..….. (5 ,000) 175,000
Goodwill ………..………..……….……………..…...$ 55,000
Pratt Spider Debit Credit Consolidated
Cash 36,000 18,000 54,000
Receivables 116,000 52,000 168,000
Equipment (net) 308,000 40,000 (A) 10,000 338,000
Client contracts -0- -0- (A) 100,000 100,000
Research and
devlopment asset -0- -0- (A) 40,000 40,000
Goodwill -0- -0 – (A) 55,000 55 ,000
capital (170,000) (25,000) (S) 25,000 (170,000)
Retained earnings (752 ,000) (140 ,000) (S)140 ,000
(752 ,000)
Total liabilities
and equities (1 ,900,000)(350 ,000) 510 ,000
27. (continued) Pratt Company and Subsidiary
Consolidated Balance Sheet
December 31, 2015
Assets Liabilities and Owners’ Equity
Receivables 168,000
Notes payable 575,000
Inventory 230,000
Computer software 280,000
Buildings (net) 725,000
Equipment (net) 338,000
Client contracts 100,000
28. (15 minutes) (Acquisition method entries for a merger)
Case 1: Fair value of consideration transferred $145,000
Fair value of net identifiable assets 120,000
Excess to goodwill $25,000
Case 1 journal entry on Allerton’s books:
Liabilities 40,000
Cash 145,000
Case 2: Bargain Purchase under acquisition method
Fair value of consideration transferred $110,000
Fair value of net identifiable assets 120,000
Gain on bargain purchase $ 10,000
Case 2 journal entry on Allerton’s books:
Gain on Bargain Purchase 10,000
Liabilities 40,000
Cash 110,000
Problem 28. (continued)
In a bargain purchase, the acquisition method employs the fair value of the net
29. (25 minutes) (Combination entries—acquired entity dissolved)
Cash consideration transferred $310,800
Contingent performance obligation 17,900
Consideration transferred (fair value) 328,700
Fair value of net identifiable assets 294,700
Goodwill $ 34,000
Journal entries:
Receivables 83,900
Inventory 70,250
Contingent Performance Liability 17,900
Cash 310,800
Professional Services Expense 15,100
Cash 15,100
30. (30 Minutes) (Overview of the steps in applying the acquisition method when
shares have been issued to create a combination. Part h. includes a bargain
purchase.)
a. The fair value of the consideration includes
Fair value of stock issued $1,500,000
c. In a business combination, direct acquisition costs (such as fees paid to
d. The par value of the 20,000 shares issued is recorded as an increase of
e. Fair value of consideration transferred (above) $1,530,000
Receivables $ 80,000
Patented technology 700,000
f. Revenues and expenses of the subsidiary from the period prior to the
combination are omitted from the consolidated totals. Only the operational
h. The fair value of the consideration transferred is now $1,030,000. This
amount indicates a bargain purchase calculated as follows:
Fair value of consideration transferred $1,030,000
Receivables $ 80,000
Patented technology 700,000
The values of SafeData’s assets and liabilities would be recorded at fair value,