Phelps, Inc. acquires all of the stock of Skelton Company for $8 million in cash. At the
Question:
Phelps, Inc. acquires all of the stock of Skelton Company for $8 million in cash. At the date of acquisition, Skelton’s current assets had a book value of $5 million and a fair value of $3 million, its noncurrent assets had a book value of $45 million and a fair value of $20 million, and its liabilities had a book value of $30 million, which approximated fair value. Skelton also has previously unreported identifiable intangibles, valued at $17 million, that meet ASC Topic 805’s criteria for recognition. Skelton’s shareholders’ equity consists of capital stock of $25 million and a retained loss of $5 million (debit balance).
Required
a. Calculate the gain on acquisition and prepare Phelps’ journal entry to record the acquisition on its own books.
Enter answers in millions.
Description | Debit | Credit | |
---|---|---|---|
Investment in Skelton
| Answer
| 0 | |
Cash
| 0
| Answer
| |
Gain on acquisition
| 0
| Answer
|
b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Phelps and Skelton at the date of acquisition.
Enter answers in millions.
Ref. | Description | Debit | Credit | |
---|---|---|---|---|
(E) | Capital stock
| Answer
| 0 | |
Retained earnings
| 0 | Answer
| ||
Investment in Skelton | Answer
| Answer
| ||
(R) | Identifiable intangibles | Answer
| Answer
| |
Investment in Skelton
| Answer
| 0 | ||
Current assets
| 0
| Answer
| ||
Noncurrent assets | 0
| Answer |