The condensed balance sheets for Rice & Associates and Rachel Company as of Dece
ID: 2584825 • Letter: T
Question
The condensed balance sheets for Rice & Associates and Rachel Company as of December 30, 2016 are shown in Exhibit 1. On December 31, 2016, Rice & Associates purchased 80.0 percent of Rachel Company for $140,000 by issuing 50,000 shares of its previously authorized common stock. As of December 31, 2016, the fair values of Rachel Company’s assets and liabilities are shown below, including customer lists, an intangible asset identified during the acquisition:
Cash $10,000
Accounts receivable 40,000
Inventory 70,000
Property, plant and equipment 120,000
Customer lists 10,000
Accounts payable 15,000
Long-term liabilities 65,000
Required:
a. Prepare a consolidated balance sheet immediately after the acquisition on December 31, 2016.
b. Will an account called “investment in Rachel Company” appear as an asset in Rice & Associate’s un-consolidated balance sheet? (circle one) Yes or No?
c. Will an account called “investment in Rachel Company” appear as an asset in Rice & Associate’s consolidated balance sheet? (circle one) Yes or No?
d. Will an account called “goodwill” appear as an asset in Rice & Associates un-consolidated balance sheet? (circle one) Yes or No?
e. Will an account called “goodwill” appear as an asset in Rachel Company’s un-consolidated balance sheet? (circle one) Yes or No?
Explanation / Answer
(a). The condensed balance sheets are not provided.
(b) Yes.
(c) No.
After consolidation , the investment account is replaced by the assets and liabilities acquired by Rice & Associates.
(d) No.
Goodwill account will appear after consolidation.
(e) No.
There will be no change in the assets of Rachel Company.
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