Income statement: Sales. Cost of goods sold. Gross profit. Equity income. Operating expenses. Net income. Assume...

 

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Income statement: Sales. Cost of goods sold. Gross profit. Equity income. Operating expenses. Net income. Assume the parent company acquires its subsidiary on January 1, 2019, by exchanging 59,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end the first year. On the acquisition date, all of the subsidiary's individual net assets had fair values that equaled their book values except for the following: PPE assets are undervalued by $120,000 (depreciation = $10,000 per year), and the subsidiary has an unrecorded Patent that has a fair value of $320,000 (amor- tization = $40,000 per year). Any remaining difference between the purchase price and the fair value of the identifiable assets results from expected synergies that are expected to be realized as a result of the business combination. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019: a. b. Parent C. Subsidiary 150,000 (1,000,000) 850,000 $5,500,000 $1,600,000 (3,800,000) (950,000) 1,700,000 650,000 Accounts receivable. Statement of retained earnings: Beginning retained earnings... $2,800,000 $800,000 Net income 850,000 200,000 Dividends (160,000) (60,000) Ending retained earnings. $3,490,000 $940,000 (450,000) $ 200,000 Balance sheet: Assets Cash Inventory Equity investment. Property, plant and equipment (PPE), net ... Liabilities and stockholders' equity Accounts payable. Accrued liabilities Long-term liabilities. Common stock APIC. Retained earnings Parent $ 300,000 700,000 940,000 1,860,000 3,400,000 $7,200,000 $ 220,000 340,000 450,000 600,000 2,100,000 3,490,000 $7,200,000 Subsidiary $ 120,000 360,000 600,000 d. Prepare the consolidation entries for the year ended December 31, 2019. e. Prepare the consolidated spreadsheet for the year ended December 31, 2019. f. 920,000 $2,000,000 $ 100,000 180,000 430,000 150,000 200,000 940,000 $2,000,000 Prepare the journal entry to record the acquisition of the subsidiary. Show the computations to yield the equity income of $150,000 reported by the parent in its income statement. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,860,000. What additional assets have been recognized on the consolidated balance sheet that were not explicitly reported on the balance sheets of either the parent or the subsidiary? Why were they not previously reported in pre-acquisition financial statements of the parent or the subsidiary? Income statement: Sales. Cost of goods sold. Gross profit. Equity income. Operating expenses. Net income. Assume the parent company acquires its subsidiary on January 1, 2019, by exchanging 59,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end the first year. On the acquisition date, all of the subsidiary's individual net assets had fair values that equaled their book values except for the following: PPE assets are undervalued by $120,000 (depreciation = $10,000 per year), and the subsidiary has an unrecorded Patent that has a fair value of $320,000 (amor- tization = $40,000 per year). Any remaining difference between the purchase price and the fair value of the identifiable assets results from expected synergies that are expected to be realized as a result of the business combination. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019: a. b. Parent C. Subsidiary 150,000 (1,000,000) 850,000 $5,500,000 $1,600,000 (3,800,000) (950,000) 1,700,000 650,000 Accounts receivable. Statement of retained earnings: Beginning retained earnings... $2,800,000 $800,000 Net income 850,000 200,000 Dividends (160,000) (60,000) Ending retained earnings. $3,490,000 $940,000 (450,000) $ 200,000 Balance sheet: Assets Cash Inventory Equity investment. Property, plant and equipment (PPE), net ... Liabilities and stockholders' equity Accounts payable. Accrued liabilities Long-term liabilities. Common stock APIC. Retained earnings Parent $ 300,000 700,000 940,000 1,860,000 3,400,000 $7,200,000 $ 220,000 340,000 450,000 600,000 2,100,000 3,490,000 $7,200,000 Subsidiary $ 120,000 360,000 600,000 d. Prepare the consolidation entries for the year ended December 31, 2019. e. Prepare the consolidated spreadsheet for the year ended December 31, 2019. f. 920,000 $2,000,000 $ 100,000 180,000 430,000 150,000 200,000 940,000 $2,000,000 Prepare the journal entry to record the acquisition of the subsidiary. Show the computations to yield the equity income of $150,000 reported by the parent in its income statement. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,860,000. What additional assets have been recognized on the consolidated balance sheet that were not explicitly reported on the balance sheets of either the parent or the subsidiary? Why were they not previously reported in pre-acquisition financial statements of the parent or the subsidiary?

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