Assume that the parent company acquires its subsidiary by exchanging 75,400 shar

Question

Assume that the parent company acquires its subsidiary by exchanging 75,400 shares of its Common Stock, with a fair value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that is undervalued by $480,000, an unrecorded License Agreement with a fair value of $230,000, and an unrecorded Customer List owned by the subsidlary with a fair value of $120,000. Any further discrepancy between the purchase price and the book value of the subsidiary's Stockholders' Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition. a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts will each of the following be reported on the consolidated balance sheet? (see table numbered 1-7 to answer) Parent Subsidia Balance Sheet Assets Cash Accounts receivable $728,400 $181,440 307,200 375,840 465,600 482,760 Inventory Equity investment Property, plant and equipment (PPE), net 2,262,000 2,000,000 893,160 $5,763,200 $1,933,200 Liabilities and stockholders' equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC Retained earnings $150,480 $114,300 176,640 198,900 1,062,320 540,000 176,000 108,000 2,992,000 35,000 1,205,760 837,000 $5,763,200 $1,933,200 1. Accounts Receivable 683,0 2. Equity Investment 3. PPE, net 4. Goodwill 5. Common Stock 6. APIC 7. Retained Earnings 1,205, 3,373, 352,00 $176,00V 2,992,

Explanation / Answer

Goodwill is the excess of the purchase price paid over the fair value of the assets and liabilities acquired.

Purchase price (75400 x $30) 2262000 Cash 181440 Accounts receivable 375840 Inventory 482760 PPE, net (893160 + 480000) 1373160 Unrecorded license agreement 230000 Unrecorded customer list 120000 Total assets 2763200 Less: Liabilities Accounts payable 114300 Accrued liabilities 198900 Long-term liabilities 540000 Total liabilities 853200 1910000 Goodwill $ 352000

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