On January 1, 2017, North Corp. acquired all of the outstanding common stock of South Inc. by
Question:
On January 1, 2017, North Corp. acquired all of the outstanding common stock of South Inc. by issuing shares of its own stock. South's book value was $100,000 at the time. North issued 12,000 shares having a par value of $1 per share and a fair value of $30 per share. At the time of the acquisition, North found that the buildings (5 years remaining useful life) were undervalued on South's books by $50,000. At the same time, equipment (10 years remaining useful life) was undervalued by $30,000.
Following are the individual financial records for these two companies for the year ended December 31, 2020.
31-Dec-20 | |||
North | South | ||
Revenues | (372,000) | (200,000) | |
Expenses | 264,000 | 152,000 | |
Equity in investee earnings | (35,000) | - | |
Net Income | (143,000) | (48,000) | |
Retained earnings, January 1, 2020 | (765,000) | (102,000) | |
Net income (above) | (143,000) | (48,000) | |
Dividends paid | 64,000 | 20,000 | |
Retained earnings, December 31, 2020 | (844,000) | (130,000) | |
Current assets | 100,000 | 22,000 | |
Investment in South Inc. | 410,000 | - | |
Buildings (net) | 525,000 | 89,000 | |
Equipment (net) | 370,250 | 200,000 | |
Total Assets | 1,405,250 | 311,000 | |
Liabilities | (151,250) | (109,000) | |
Common Stock | (360,000) | (72,000) | |
APIC | (50,000) | - | |
Retained Earnings, December 31, 2020 (above) | (844,000) | (130,000) | |
Total Liabilities and SE | (1,405,250) | (311,000) |
Required:
Prepare a consolidation worksheet for this business combination.
Financial reporting, financial statement analysis and valuation a strategic perspective
ISBN: 978-0324789416
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw