The balance sheets of Ola and Jake Companies as of December 31, 2010, appear below.

Assume that Ola Company purchased 100 percent of Jake’s common stock for $350,000 immediately prior to December 31, 2010. Also assume that $80,000 of the excess of cost over book value is attributable to the increased value of Jake Company’s property, plant, and equipment. The rest of the excess is considered by Ola Company to be goodwill.

Required

1. Prepare a work sheet for preparing a consolidated balance sheet as of the acquisition date.

2. If you were reading Ola’s consolidated balance sheet, what account would indicate that Ola paid more than fair value for Jake and where would you find it on the balance sheet? Also, would you expect the amount of this account to change from year-to-year? What would cause it to change?

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Ola Company Jake Company Assets $ 60,000 100,000 350,000 100,000 $ 40,000 30,000 Cash Accounts receivable Investment in Jake Company Property, plant, and equipment (net) Total assets 180,000 $250,000 $610,000 Liabilities and Stockholders' Equity $ 30,000 200,000 20,000 $250,000 Accounts payable Common stock, $20 par value Retained earnings Total liabilities and stockholders' equity $110,000 400,000 100,000 $610,000