Question: On January 1 2012 Pruitt Company issued 25 500 shares of

On January 1, 2012, Pruitt Company issued 25,500 shares of its common stock in exchange for 85% of the outstanding common stock of Shah Company. Pruitt’s common stock had a fair value of $28 per share at that time (par value of $2 per share). Pruitt Company uses the cost method to account for its investment in Shah Company and files a consolidated income tax return. A schedule of the Shah Company assets acquired and liabilities assumed at book values (which are equal to their tax bases) and fair values follows.

Additional Information:
1. Pruitt’s income tax rate is 35%.
2. Shah’s beginning inventory was all sold during 2012.
3. Useful lives for depreciation and amortization purposes are:
Plant assets........ 10 years
Patents ........... 8 years
Bond premium........ 10 years
4. Pruitt uses the straight-line method for all depreciation and amortization purposes.

A. Prepare the stock acquisition entry on Pruitt Company’s books.
B. Prepare the eliminating entries for a consolidated statements workpaper on January 1, 2012, immediately after acquisition.

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  • CreatedMarch 13, 2015
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