Consolidation Eliminating Entries, Several Years Since Acquisition In July 2019, IBM Corporation acquired all of the...

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Consolidation Eliminating Entries, Several Years Since Acquisition In July 2019, IBM Corporation acquired all of the outstanding stock of Red Hat Software. Cash paid for outstanding Red Hat stock totaled $80,042 million. In addition, stock-based compensation awards attributable to pre- combination services had a fair value of $400 million, and stock issued to holders of vested performance share units were valued at $242 million. Acquisition-related legal and advisory fees of $435 million were paid in cash. Compensation related to employee retention plans for the period following the acquisition, paid in cash in 2019, totaled $529 million. An estimated $426 million associated with these retention plans remains to be paid in future years. Red Hat's balance sheet at the date of acquisition, plus fair value information, are as follows (in millions): (in millions) Current assets Property, plant and equipment Intangible assets Goodwill Total assets Current liabilities Noncurrent liabilities Total liabilities Capital stock Retained earnings Treasury stock Accumulated other comprehensive loss Total equity Total liabilities and equity Fair Book Value Value $7,565 $7,328 4,168 2160 458 30,986 2,928 $15,119 $3,827 $3,169 7,250 9,810 11,077 6,562 5,049 (7,459) (110) 4,042 $15,119 It is now December 31, 2023, the reporting year-end for both IBM and Red Hat. IBM uses the complete equity method to account for its investment in Red Hat on its own books. Assume the acquisition took place July 1, 2019. Also assume the following information (in millions): Information concerning revaluations is as follows: - Revaluation of current assets relate to inventories sold in 2019. It is now December 31, 2023, the reporting year-end for both IBM and Red Hat. IBM uses the complete equity method to account for its investment in Red Hat on its own books. Assume the acquisition took place July 1, 2019. Also assume the following information (in millions): Information concerning revaluations is as follows: - Revaluation of current assets relate to inventories sold in 2019. - The revalued property, plant and equipment has a 10-year life, straight-line. - The revaluation of intangible assets consists of $16,348 for client relationships with a 10-year life, $10,357 for completed technology with a 9-year life, and $3,823 for trademarks, with a 20-year life, all straight-line. - No impairment is reported for goodwill. - Revaluation of current liabilities relates to liabilities settled in 2019. - Revaluation of noncurrent liabilities relates to liabilities settled prior to 2023. Red Hat's retained earnings at January 1, 2023, is $9,200; its accumulated other comprehensive loss at January 1, 2023, is $230. There are no changes in Red Hat's capital stock or treasury stock. For 2023, Red Hat reports income of $3,450 and other comprehensive losses of $58. For the questions below, show your answers in millions, and round to the nearest million. Note: Do not round intermediate calculations - only round final answers. Required a. Calculate the balance in the investment account, reported on IBM's books on July 1, 2019, and on December 31, 2023. July 1, 2019 $ December 31, 2023 $ b. Prepare the eliminating entries (C), (E), (R), and (O) necessary to consolidate the trial balances of IBM and Red Hat at December 31, 2023. Debit Credit (C) (E) (R) (O) To eliminate current year's equity method entries To eliminate subsidiary's equity account balances To recognize fair value revaluations To recognize revaluation write-offs Consolidation Eliminating Entries, Several Years Since Acquisition In July 2019, IBM Corporation acquired all of the outstanding stock of Red Hat Software. Cash paid for outstanding Red Hat stock totaled $80,042 million. In addition, stock-based compensation awards attributable to pre- combination services had a fair value of $400 million, and stock issued to holders of vested performance share units were valued at $242 million. Acquisition-related legal and advisory fees of $435 million were paid in cash. Compensation related to employee retention plans for the period following the acquisition, paid in cash in 2019, totaled $529 million. An estimated $426 million associated with these retention plans remains to be paid in future years. Red Hat's balance sheet at the date of acquisition, plus fair value information, are as follows (in millions): (in millions) Current assets Property, plant and equipment Intangible assets Goodwill Total assets Current liabilities Noncurrent liabilities Total liabilities Capital stock Retained earnings Treasury stock Accumulated other comprehensive loss Total equity Total liabilities and equity Fair Book Value Value $7,565 $7,328 4,168 2160 458 30,986 2,928 $15,119 $3,827 $3,169 7,250 9,810 11,077 6,562 5,049 (7,459) (110) 4,042 $15,119 It is now December 31, 2023, the reporting year-end for both IBM and Red Hat. IBM uses the complete equity method to account for its investment in Red Hat on its own books. Assume the acquisition took place July 1, 2019. Also assume the following information (in millions): Information concerning revaluations is as follows: - Revaluation of current assets relate to inventories sold in 2019. It is now December 31, 2023, the reporting year-end for both IBM and Red Hat. IBM uses the complete equity method to account for its investment in Red Hat on its own books. Assume the acquisition took place July 1, 2019. Also assume the following information (in millions): Information concerning revaluations is as follows: - Revaluation of current assets relate to inventories sold in 2019. - The revalued property, plant and equipment has a 10-year life, straight-line. - The revaluation of intangible assets consists of $16,348 for client relationships with a 10-year life, $10,357 for completed technology with a 9-year life, and $3,823 for trademarks, with a 20-year life, all straight-line. - No impairment is reported for goodwill. - Revaluation of current liabilities relates to liabilities settled in 2019. - Revaluation of noncurrent liabilities relates to liabilities settled prior to 2023. Red Hat's retained earnings at January 1, 2023, is $9,200; its accumulated other comprehensive loss at January 1, 2023, is $230. There are no changes in Red Hat's capital stock or treasury stock. For 2023, Red Hat reports income of $3,450 and other comprehensive losses of $58. For the questions below, show your answers in millions, and round to the nearest million. Note: Do not round intermediate calculations - only round final answers. Required a. Calculate the balance in the investment account, reported on IBM's books on July 1, 2019, and on December 31, 2023. July 1, 2019 $ December 31, 2023 $ b. Prepare the eliminating entries (C), (E), (R), and (O) necessary to consolidate the trial balances of IBM and Red Hat at December 31, 2023. Debit Credit (C) (E) (R) (O) To eliminate current year's equity method entries To eliminate subsidiary's equity account balances To recognize fair value revaluations To recognize revaluation write-offs

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