Phelps, Inc. acquires all of the stock of Skelton Company for $8 million in cash. At the date of acquisition, Skelton’s current assets had a book value of $5 million and a fair value of $3 million, its noncurrent assets had a book value of $45 million and a fair value of $20 million, and its liabilities had a book value of $30 million, which approximated fair value. Skelton also has previously unreported identifiable intangibles, valued at $17 million, that meet ASC Topic 805’s criteria for recognition. Skelton’s shareholders’ equity consists of capital stock of $25 million and a retained loss of $5 million (debit balance). 

Required 

a. Calculate the gain on acquisition and prepare Phelps’ journal entry to record the acquisition on its own books. 

Enter answers in millions. 

Description		Debit	Credit
Investment in Skelton		Answer	0
Cash		0	Answer
Gain on acquisition		0	Answer

 

b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Phelps and Skelton at the date of acquisition. 

Enter answers in millions. 

Ref.	Description		Debit	Credit
(E)	Capital stock		Answer	0
	Retained earnings		0	Answer
	Investment in Skelton		Answer	Answer
(R)	Identifiable intangibles		Answer	Answer
	Investment in Skelton		Answer	0
	Current assets		0	Answer
	Noncurrent assets		0	Answer