Using the acquisition method, prepare the necessary journal entries and a consolidating worksheet the Richard will make if Kathy retains separate legal incorporation and maintain its own accounting systems. The market price of Richard Company's stock on the day of the acquisition is $45 per share.

	Richard Company	Kathy Company	Kathy Company
	Book Values	Book Values	Fair Values
	12/31/2017	12/31/2017	12/31/2017
Cash	687,500.00	247,500.00	247,500.00
Receivables	1,067,000.00	308,000.00	346,500.00
inventory	1,545,500.00	715,000.00	847,000.00
Building & Equipment, Net	9,790,000.00	1,006,500.00	1,017,500.00
Unpatented Technology	-	-	440,000.00
In-Process Research & Development	-	-	220,000.00
Total Assets	13,090,000.00	2,277,000.00	3,118,500.00
Accounts Payable	440,000.00	99,000.00	99,000.00
Notes Payable	3,740,000.00	1,353,000.00	1,353,000.00
Common Stock $20 par value	2,200,000.00	-
Common Stock $5 par value	-	242,000.00
Addtl Paid in Capital	990,000.00	110,000.00
Retained Earnings	5,720,000.00	473,000.00
Total Liabilities and Equity	13,090,000.00	2,277,000.00	1,452,000.00
Total Fair values (Assets-Liabilities)			1,666,500.00

Additional information:

On 12/31, Richard issues 40,000 shares of its $20 par value common stock for all of the outstanding shares of Richard Company.

As par of the acquisition agreement, Richard agrees to pay the former owners of Kathy Company $350,000 if certain profit projections are realized over the next three years. Richard calculates the acquisition date fair value of this contingency at $150,000.

In creating this combination, Richard pays $15,000 in stock issue costs and $25,000 in accounting and legal fees.

	Richard Company	Kathy Company
	Book Values	Book Values
	12/31/2017	12/31/2017
Retained Earnings 1/1/17	2,530,000.00	165,000.00
Revenues	7,810,000.00	1,210,000.00
Expenses	4,620,000.00	902,000.00