On January 1, 2018, Marshall Company acquired 100 percent of the outstanding com
ID: 2336365 • 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 $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:
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.
Marshall CompanyBook 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 )
Explanation / Answer
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