Question - On January 1, 2011 Marshall acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $200,000 in long-term liabilities and 32,000 shares of common stock having a par value of $1, but a fair value of $10 per share. Marshall paid $30,000 to accountants, lawyers, and brokers for assistance 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 follows:
Marshall company BV Tucker company BV
Cash........... $60000 $20000
Receivables..... 270000 90000
Inventory........ 360000 140000
Land..............200000 180000
Buildings(net).....420000 220000
Equipment(net)......160000 50000
Accounts payable....(150000) (40000)
Long-term liabilities(430000) (200000)
Commom stock-$1 par value(110000) -
Common stock-$20 par value - (120000)
Additional paid-in capital(360000) -0-
Retained earnings, 1/1/11 (420000) (340000)
In Marshall's appraisal of Tucker, it deemed two accounts to be undervalued on the subsidiary's books: Land by $20,000 and Buildings by $30,000. Tucker will remain a separate legal identity and operate as a wholly owned subsidiary. Marshall appropriately uses the US/IFRS acquisition accounting with the equity method. At the point of combination, the investment advisor discovered $5,000 impairment of goodwill which is immediately written off against Marshall's retained earnings.
a) Determined the amounts that Marshall Company would report in its post-acquisition balance sheet. In preparing the post-acquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall's retained earnings.
b) To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 2011.