Balance Sheet Consolidation AICPA Adapted Case Inc acquired

Balance Sheet Consolidation [AICPA Adapted]

Case Inc. acquired all Frey Inc.\'s outstanding $25 par common stock on December 31, 20X3, in exchange for 40,000 shares of its $25 par common stock. Case\'s common stock closed at $56.50 per share on a national stock exchange on December 31, 20X3. Both corporations continued to operate as separate businesses maintaining separate accounting records with years ending December 31.

Page 187

On December 31, 20X4, after year-end adjustments and the closing of nominal accounts, the companies had condensed balance sheet accounts (below).

Additional Information

Case uses the equity method of accounting for its investment in Frey.

On December 31, 20X3, Frey\'s assets and liabilities had fair values equal to the book balances with the exception of land, which had a fair value of $550,000. Frey had no land transactions in 20X4.

On June 15, 20X4, Frey paid a cash dividend of $4 per share on its common stock.

On December 10, 20X4, Case paid a cash dividend totaling $256,000 on its common stock.

On December 31, 20X3, immediately before the combination, the stockholders\' equity balance was:

Case Inc.

Frey Inc.

Common Stock

$2,200,000

$1,000,000

Additional Paid-In Capital

1,660,000

190,000

Retained Earnings

3,166,000

820,000

$7,026,000

$2,010,000

The 20X4 net income amounts according to the separate books of Case and Frey were $890,000 (exclusive of equity in Frey\'s earnings) and $580,000, respectively.

Case Inc.

Frey Inc.

Assets

Cash

$ 825,000

$ 330,000

Accounts & Other Receivables

2,140,000

835,000

Inventories

2,310,000

1,045,000

Land

650,000

300,000

Depreciable Assets (net)

4,575,000

1,980,000

Investment in Frey Inc.

2,680,000

Long-Term Investments & Other Assets

865,000

385,000

Total Assets

$14,045,000

$4,875,000

Liabilities & Stockholders\' Equity

Accounts Payable & Other Current Liabilities

$ 2,465,000

$1,145,000

Long-Term Debt

1,900,000

1,300,000

Common Stock, $25 Par Value

3,200,000

1,000,000

Additional Paid-In Capital

2,100,000

190,000

Retained Earnings

4,380,000

1,240,000

Total Liabilities & Stockholders\' Equity

$14,045,000

$4,875,000

Required

Prepare a consolidated balance sheet worksheet for Case and its subsidiary, Frey, for December 31, 20X4. A formal consolidated balance sheet is not required.

	Case Inc.	Frey Inc.
Common Stock	$2,200,000	$1,000,000
Additional Paid-In Capital	1,660,000	190,000
Retained Earnings	3,166,000	820,000
	$7,026,000	$2,010,000

Solution

Case Inc. and Frey Inc. Consolidated Balance Sheet Workpaper December 31, 20X4    Case Frey Eliminations                  Item                         Inc.           Inc.            Debit             Credit       Consolidated Cash 825,000 330,000 1,155,000 Accounts and Other Receivables 2,140,000 835,000 2,975,000 Inventory 2,310,000 1,045,000 3,355,000 Land 650,000 300,000 (2)    250,000 1,200,000 Deprec. Assets (net) 4,575,000 1,980,000 6,555,000 Investment in Frey Inc. Stock 2,680,000 (1)2,680,000 Long-Term Investments and Other Assets 865,000 385,000 1,250,000 Differential                                     (1)    250,000 (2)   250,000                    Total Debits 14,045,000 4,875,000 16,490,000 Accounts Payable and Other Current Liabilities 2,465,000 1,145,000 3,610,000 Long-Term Debt 1,900,000 1,300,000 3,200,000 Common Stock, $25 Par 3,200,000 1,000,000 (1) 1,000,000 3,200,000 Additional Paid-In Capital 2,100,000 190,000 (1)    190,000 2,100,000 Retained Earnings   4,380,000 1,240,000 (1) 1,240,000 _________ 4,380,000 Total Credits 14,045,000 4,875,000    2,930,000 2,930,000 16,490,000