Homework SourseAssume that the parent company acquires its subsidiary by ex
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 subsidiary 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)
$1,933,200
b. What intangible assets will be reported on the consolidated balance sheet and at what amounts?
| Balance Sheet | Parent | Subsidiary |
|---|---|---|
| Assets | ||
| Cash | $728,400 | $181,440 |
| Accounts receivable | 307,200 | 375,840 |
| Inventory | 465,600 | 482,760 |
| Equity investment | 2,262,000 | |
| Property, plant and equipment (PPE), net | 2,000,000 | 893,160 |
| $5,763,200 | $1,933,200 | |
| Liabilities and stockholders’ equity | ||
| Accounts payable | $150,480 | $114,300 |
| Accrued liabilities | 176,640 | 198,900 |
| Long-term liabilities | 1,062,320 | 540,000 |
| Common stock | 176,000 | 108,000 |
| APIC | 2,992,000 | 135,000 |
| Retained earnings | 1,205,760 | 837,000 |
| $5,763,200 | $1,933,200 |
Solution
Working:
| a. | ||||||||
| Parent | subsidiary | Consolidated | ||||||
| Book | New issue | Total | Book value | Addition | Total | |||
| 1 | Accounts Receivable | 728400 | 728400 | 181440 | 181440 | 909840 | ||
| 2 | Equity Unvestment | 0 | 0 | 0 | 0 | 0 | ||
| 3 | PPE, net | 2000000 | 2000000 | 893160 | 480000 | 1373160 | 3373160 | |
| 4 | Goodwill | 352000 | 352000 | 0 | 0 | 352000 | ||
| 5 | Common Stock | 176000 | 754000 | 930000 | 0 | 0 | 0 | 930000 |
| 6 | APIC | 2992000 | 1508000 | 4500000 | 0 | 0 | 0 | 4500000 |
| 7 | Retained Earnings | 1205760 | 1205760 | 837000 | 837000 | 2042760 | ||
| Common stock of parent is considered to be consisting of $10 par shares. | ||||||||
| New issue of 75,400 shares will be accounted at $754,000 towards common stock and 75,400 x $20 = $1,508,000 towards | ||||||||
| APIC. | ||||||||
| b. | ||||||||
| Licensing Agreement | 230000 | |||||||
| Customer List | 120000 | |||||||
| Goodwill | 352000 |
