Problem 2-23 [LO4, LO5, LO7]

On January 1, 2013, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $190,950 in long-term liabilities and 21,600 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $31,200 to accountants, lawyers, and brokers for assistance in the acquisition and another $23,100 in connection with stock issuance costs.

    Prior to these transactions, the balance sheets for the two companies were as follows:

 Marshall Company

Book ValueTucker Company

Book Value

  Cash$88,000     $14,400     

  Receivables300,000     93,600     

  Inventory327,000     111,000     

  Land208,000     251,000     

  Buildings (net)430,000     297,000     

  Equipment (net)237,000     58,750     

  Accounts payable(186,000)    (58,750)    

  Long-term liabilities(510,000)    (281,000)    

  Common stock—$1 par value(110,000)     

  Common stock—$20 par value(120,000)    

  Additional paid-in capital(360,000)    0     

  Retained earnings, 1/1/13(424,000)    (366,000)    

________________________________________

  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 $5,800, Land by $25,050, and Buildings by $39,600. 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. (Input all amounts as positive values.)

b.Prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2013. (Leave no cells blank – be certain to enter “0” wherever required. Enter the consolidation entries of ‘Investment in Tucker Company’ in order of (S) Elimination of subsidiary’s stockholders’ equity and (A) Allocation of Tucker’s consideration fair value in excess of book value. Input all amounts as positive values except for the credit balances which should be entered with the minus sign.)

Problem 2-24 [LO4, LO5, LO7, LO8]

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2013, for $478,050 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:

 Book

ValuesFair

Values

  Computer software$49,500    $88,500    

  Equipment55,500    36,400    

  Client contracts0    105,000    

  In-process research and development0    29,750    

  Notes payable(104,000)   (112,850)   

________________________________________

At December 31, 2013, the following financial information is available for consolidation:

 PrattSpider

  Cash$15,500  $19,200  

  Receivables117,000  57,900  

  Inventory165,000  103,900  

  Investment in Spider478,050  0  

  Computer software250,000  49,500  

  Buildings (net)600,500  172,500  

  Equipment (net)319,000  55,500  

  Client contracts0  0  

  Goodwill0  0  

 ________________________________________________________________________________________________________________________________________________________________________________________________________

     Total assets$1,945,050  $458,500  

 ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

  Accounts payable$(96,300) $(65,500) 

  Notes payable(530,750) (104,000) 

  Common stock(380,000) (100,000) 

  Additional paid-in capital(170,000) (25,000) 

  Retained earnings(768,000) (164,000) 

 ________________________________________________________________________________________________________________________________________________________________________________________________________

     Total liabilities and equities$(1,945,050) $(458,500) 

 ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

________________________________________

Note: Parentheses indicate a credit balance.

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2013. (Input all amounts as positive values.)