Consider the following balance sheets ($ in millions): Company A paid $90 million to Company B stockholders for all their stock. The fair value of

Consider the following balance sheets ($ in millions):

Company A paid $90 million to Company B stockholders for all their stock. The “fair value” of the plant assets of Company B is $40 million. The fair value of cash and inventories is equal to their carrying amounts. Companies A and B continued to keep separate books.
1. Prepare a tabulation showing the balance sheets of companies A and B, intercompany eliminations, and the consolidated balance sheet immediately after the acquisition.
2. Suppose that $50 million instead of $40 million of the total purchase price of $90 million could logically be assigned to the plant assets. How would the consolidated accounts be affected?
3. Refer to the facts in requirement 2. Suppose Company A had paid $100 million instead of $90 million. State how your tabulation in requirement 2 wouldchange.

Company A Cash Inventories Plant assets, net Total assets Common stock and paid-in surplus Retained earnings Total llab. and stk. equity $150 65 65 $280 $80 200 280 Company B 15 25 30 $ 70 30 40 70