MS 45.) Consolidation at date of acquisition (purchase price equals book value)

Question

MS 45.) Consolidation at date of acquisition (purchase price equals book value) A parent company acquires its subsidiary by exchanging 50,000 shares of its Common Stock, with ad value on the acquisition date of $24 per share, for all of the outstanding voting shares of the investee, What is the total fair value of the subsidiary on the acquisition date? a. b. Prepare the consolidation entry or entries on the date of acquisition given the following balance sheets of the parent and subsidiary on the date of acquisition. Parent Subsidiary Balance Sheet Assets s 480,000 271.200 417,600 536,400 .. 1.500.0 40 Invent ory 1,200,000 992,400 Property, plant and equipment (PPE), net 11,150,000 $16,630,000 $2,217,600 Liabilities and stockholders' equity . 750,000 S 152,400 880,000 265.200 3,500,000 600,000 Long-term liabilities . 120,000 930,000 $16,630,000 $2,217,600 1,600,000 50,000 Retained earnings. 6,100,000 c. Prepare the consolidated balance sheet on the date of acquisition.

Explanation / Answer

a. Total fair value of the Subsidiary Total Assets $2,217,600 Less : Accounts Payable $152,400 Accrued Liabilities $265,200 Long Term Liabilities $600,000 Total Liabilities $1,017,600 Total fair value of the Subsidiary $1,200,000 b. Journal entry in the books of Parent company as the time of acquisition : Particulars Debit Credit Subsidiary Cash $271,200 Subsidiary Accounts Receivable $417,600 Subsidiary Inventory $536,400 Subsidiary Plant Property and Equipment $992,400         To Subsidiary Accounts Payable $152,400         To Subsidiary Accrued Liabilities $265,200          To Subsidiary L. T. Liabilities $600,000            To Common Stock $1,200,000 c) Consolidation of the Balance Sheet: Assets: Amount Cash[480,000+271,200] $751,200 Accounts Receivable[1,500,000+417,600] $1,917,600 Inventory[2,300,000+536,400] $2,836,400 Plant Property and Equipment [11,150,000+992,400] $12,142,400 Total Assets $17,647,600 Liabilities and Shareholder's Equity Amount Accounts Payable[750,000+152,400] $902,400 Accrued Liabilities[880,000+265,200] $1,145,200 Long Term Liabilities[3,500,000+600,000] $4,100,000 Common Stock $1,600,000 APIC $3,800,000 Retained earnings $6,100,000 Total Liabilities and Shareholder's Equity $17,647,600

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