Question :
On 1st January, 2011, Marshall Company acquired 100 % of the outstanding general stock of Tucker Company. To get these shares, Marshall issued $200,000 in long-term liabilities and 20,000 shares of general stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $30,000 to accountants, lawyers, and brokers for help in the acquisition and another $12,000 in connection with stock issuance costs.
Prior to these transactions, the balance sheets for the two companies were as given:
Marshall Company Book Value Tucker Company Book Value
Cash $ 60,000 $ 20,000
Receivables 270,000 90,000
Inventory 360,000 140,000
Land 200,000 180,000
Buildings (net) 420,000 220,000
Equipment (net) 160,000 50,000
Accounts payable (150,000) (40,000)
Long-term liabilities (430,000) (200,000)
Common stock-$1 par value (110,000)
Common stock-$20 par value (120,000)
Additional paid-in capital (360,000) 0
Retained earnings, 1/1/11 (420,000) (340,000)
In Marshall's appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary's books: Inventory by $5,000, Land by $20,000, and Buildings by $30,000. Marshall plans to get Tucker's separate legal identity and to operate Tucker as a entirely owned subsidiary.
(a) Determine the amounts that Marshall Company would report in its post acquisition balance sheet. In preparing the post acquisition balance sheet, any needed adjustments to income accounts from the acquisition could be closed to Marshall's retained earnings.