Question: Using the data in the Option 1 Spreadsheet (linked at the bottom of the page), perform the accounting required for the acquisition of Little, Inc. by Big, Inc. This is an 80% acquisition, where the book value of the assets acquired equals the acquisition price. Within the worksheet, you are to:
Perform the required journal entries
Complete the consolidation worksheet
Prepare the consolidated balance sheet in good form
| Assume that Big Company decides to acquire 80% Little Company for $500,000. Prepare the appropriate journal entries. |
| Big Company Balance Sheet |
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Which accounting method is most appropriate for representing an investment of this type? |
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Prepare Elimination Entries for Stock Acquisition |
| Assets, Liabilities & Equities |
Book Value |
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Account |
DR |
CR |
| Cash |
$2,100,000 |
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| AR |
$10,000 |
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| Inventory |
$200,000 |
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| Land |
$40,000 |
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| PP&E |
$400,000 |
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| Accumulated Depreciation |
-$150,000 |
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| Patent |
$0 |
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| Total Assets |
$2,600,000 |
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Prepare the journal entries for a 80% Asset Acquisition (using Big Company Cash) |
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| AP |
$100,000 |
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| Common Stock ($10 par) |
$450,000 |
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Account |
DR |
CR |
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| Additional Paid In Capital |
$600,000 |
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| Retained Earnings |
$1,450,000 |
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| Total Liabilities & Equity |
$2,600,000 |
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Prepare the journal entries for a 80% Acquisition by issuing 10,000 shares of Big Company Stock |
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Big Company Balance Sheet (Consolidated) |
| Little Company Balance Sheet |
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Assets, Liabilities & Equities |
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| Assets, Liabilities & Equities |
Book Value |
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Account |
DR |
CR |
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Cash |
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| Cash |
$35,000 |
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Investment in Little |
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AR |
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| AR |
$10,000 |
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Common Stock |
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Inventory |
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| Inventory |
$65,000 |
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Additional Paid In Capital |
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Land |
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| Land |
$40,000 |
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Allocation of Excess Schedule |
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PP&E (net) |
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| PP&E |
$400,000 |
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Accumulated Depreciation |
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| Accumulated Depreciation |
-$150,000 |
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Goodwill |
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| Patent |
$0 |
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Patent |
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| Total Assets |
$400,000 |
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Total Assets |
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| AP |
$100,000 |
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AP |
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| Common Stock |
$100,000 |
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Common Stock ($10 par) |
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| Additional Paid In Capital |
$50,000 |
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Additional Paid In Capital |
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| Retained Earnings |
$150,000 |
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Retained Earnings |
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| Total Liabilities & Equity |
$400,000 |
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NCI |
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Total Liabilities & Equity |
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