On January 1, 2018, Marshall Company acquired 100 percent of the outstanding com
ID: 2336186 • Letter: O
Question
On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $272,000 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 $32,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $16,500 in connection with stock issuance costs Prior to these transactions, the balance sheets for the two companies were as follows Marshall Company Tucker Company Book Value Book Value $79,200 $32,800 109,000 239,000 211,000 236,000 54,600 Cash Receivables Inventory Land Buildings (net) Equipment (net) Accounts payable Long-term liabilities Common stock-$1 par value Common stock-$20 par value Additional paid-in capital Retained earnings, 1/1/18 287,000 437,000 281,000 423,000 233,000 (156,000) (465,000) (272,000) (110,000) (68,700) (120,000) (360,000) (649,200 (421,700) Note: Parentheses indicate a credit balance In Marshall's appralsal of Tucker, it deemed three accounts to be undervalued on the subsidiary's books: Inventory by $9,000, Land by $23.400, and Buildings by $36,000. 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, 2018Explanation / Answer
A The amounts that Marshall Company would report in its postacquisition balance sheet Consolidated Totals Cash 63500 Receivables 396000 Inventory 667000 Land 468600 Buildings (net) 623000 Equipment (net) 287600 Total Assets 2505700 Accounts payable -224700 Long term liabilities -1009000 Common Stock -130000 APIC -523500 Retained Earnings -618500 Total liabilities and equity -2505700 Combination cost of $32000 and gain on business combination of $1300 to be debited/credited to income statement thus adjusted to be made to retained earningsand and issuance cost of $16500 to be debited to APIC Consideration paid for acquisition $472,000 Less: Common stock $120,000 Retained earnings $421,700 Gain on purchase bargain/negative goodwill ($69,700) Negative goodwill used to undervalued assets Inventory -9000 Building ($36,000) Land ($23,400) Gain on business combination ($1,300) 2 Consolidation worksheet Consolidation entries Accounts Marshall Tucker Debit Credit Consolidated Totals Cash $30,700 $32,800 $63,500 Receivables $287,000 $109,000 $396,000 Inventory $437,000 $239,000 $9,000 $667,000 Land $281,000 $211,000 $23,400 $468,600 Buildings (net) $423,000 $236,000 $36,000 $623,000 Equipment (net) $233,000 $54,600 $287,600 Investment in Tucker $472,000 $472,000 $0 Total Assets $2,163,700 $882,400 $2,505,700 Accounts payable -$156,000 -$68,700 -$224,700 Long term liabilities -$737,000 -$272,000 -$1,009,000 Common Stock -$130,000 -$120,000 $120,000 -$130,000 APIC -$523,500 -$523,500 Retained Earnings -$617,200 -$421,700 $421,700 $1,300 -$618,500 Total liabilities and equity -$2,163,700 -$882,400 $541,700 $541,700 -$2,505,700