Using the data pasted at the bottom of this question, perform the accounting req

Question

Using the data pasted at the bottom of this question, perform the accounting required for the acquisition of Little, Inc. by Big, Inc. This is a less than 100% acquisition, where the book value of the assets acquired equals the acquisition price. Within the worksheet, you are to:

Select an accounting method (either cost or equity) and explain why you selected this method

Perform the required journal entries

Complete the consolidation worksheet

Prepare the consolidated balance sheet in good form

Data to complete the problem:

Assume that Big Company decides to acquire 80% Little Company for $500,000. Prepare the appropriate journal entries. Big Company Balance Sheet Which accounting method is most appropriate for representing an investment of this type? Prepare Elimination Entries for Stock Acquisition Assets, Liabilities & Equities Book Value Account DR CR Cash $2,100,000 AR $10,000 Inventory $200,000 Land $40,000 PP&E $400,000 Accumulated Depreciation -$150,000 Patent $0     Total Assets $2,600,000 Prepare the journal entries for a 80% Asset Acquisition (using Big Company Cash) AP $100,000 Common Stock ($10 par) $450,000 Account DR CR Additional Paid In Capital $600,000 Retained Earnings $1,450,000     Total Liabilities & Equity $2,600,000 Prepare the journal entries for a 80% Acquisition by issuing 10,000 shares of Big Company Stock Big Company Balance Sheet (Consolidated) Little Company Balance Sheet Assets, Liabilities & Equities Assets, Liabilities & Equities Book Value Account DR CR Cash Cash $35,000 Investment in Little AR AR $10,000 Common Stock Inventory Inventory $65,000 Additional Paid In Capital Land Land $40,000 Allocation of Excess Schedule: PP&E (net) PP&E $400,000 Accumulated Depreciation Accumulated Depreciation -$150,000 Goodwill Patent $0 Patent     Total Assets $400,000     Total Assets AP $100,000 AP Common Stock $100,000 Common Stock ($10 par) Additional Paid In Capital $50,000 Additional Paid In Capital Retained Earnings $150,000 Retained Earnings     Total Liabilities & Equity $400,000 NCI     Total Liabilities & Equity Assume that Book Value = Fair Value

Explanation / Answer

1) If Investment is in form of Cash

Investment in Little DR 500000

To Cash Cr 500000

After effecting the above transaction, Balance sheet of both companies is as follows :-

Balance sheet of Both Companies Assets Big Inc Little Inc Cash 1600000 35000 Investment in Little Inc 500000 Account receivable 10000 10000 Inventory 200000 65000 Land 40000 40000 PP & E 400000 400000 Accumulated Dep. -150000 -150000 Total Assets 2600000 400000 Equity & Liabilities Common Stock 450000 100000 Account payble 100000 100000 Additional paid in Capital 600000 50000 Retained earnings 1450000 150000 Total Liabilities 2600000 400000

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