On January 2, 2020, Sherlock, Inc. acquired 100% of the voting shares of Holmes Company. Sherlock...

 

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On January 2, 2020, Sherlock, Inc. acquired 100% of the voting shares of Holmes Company. Sherlock will maintain Holmes as a wholly-owned subsidiary with its own legal and accounting identity. The consideration transferred to the owners of Holmes included 50,000 shares of newly issued Sherlock stock ($30 market, $5 par). Immediately prior to the acquisition, the following data for both firms were available: Book Value Fair Value Sherlock Holmes Holmes $ 95,000 $ 125,000 825,000 1,850,000 400,000 $ 3,200,000 Cash 95,000 Receivables and inventory 252,000 592,000 215,000 $ 1,154,000 242,000 750,000 300,000 Property, plant and equipment Trademarks Total assets $ (575,000) (500,000) (725,000) (1,400,000) $(3,200,000) $ 250,000) (275,000) (110,000) (519,000) $(1,154,000) $(240,000) Accounts payable Common stock, par Additional paid-in capital Retained earnings Total liabilities and equity Additional Information: Holmes has a research and development project underway which Sherlock believes to have a fair value of $125,000. Sherlock has incurred (but not yet recorded) legal fees of $25,0o00 and stock issuance costs of $15,000 associated with the acquisition. Required: 1. Prepare the necessary journal entries (show all supporting schedules and calculations) for Sherlock to record the acquisition. 2. Prepare the consolidation worksheet as of January 2, 2020. On January 2, 2020, Sherlock, Inc. acquired 100% of the voting shares of Holmes Company. Sherlock will maintain Holmes as a wholly-owned subsidiary with its own legal and accounting identity. The consideration transferred to the owners of Holmes included 50,000 shares of newly issued Sherlock stock ($30 market, $5 par). Immediately prior to the acquisition, the following data for both firms were available: Book Value Fair Value Sherlock Holmes Holmes $ 95,000 $ 125,000 825,000 1,850,000 400,000 $ 3,200,000 Cash 95,000 Receivables and inventory 252,000 592,000 215,000 $ 1,154,000 242,000 750,000 300,000 Property, plant and equipment Trademarks Total assets $ (575,000) (500,000) (725,000) (1,400,000) $(3,200,000) $ 250,000) (275,000) (110,000) (519,000) $(1,154,000) $(240,000) Accounts payable Common stock, par Additional paid-in capital Retained earnings Total liabilities and equity Additional Information: Holmes has a research and development project underway which Sherlock believes to have a fair value of $125,000. Sherlock has incurred (but not yet recorded) legal fees of $25,0o00 and stock issuance costs of $15,000 associated with the acquisition. Required: 1. Prepare the necessary journal entries (show all supporting schedules and calculations) for Sherlock to record the acquisition. 2. Prepare the consolidation worksheet as of January 2, 2020.

Answer rating: 100% (QA)

Cost of acquisition 50000 shares Share Capital 50000 shares 5 250000 Retained Earnings 50000 shares ... View the full answer