On January 1, 2012, Picante Corporation acquired 100 percent of the outstanding voting stock of Salsa Corporation for $1,881,000 cash. On the acquisition date, Salsa had the following balance sheet: |
|
|
|
|
|
|
|
Cash |
$ |
5,000 |
|
Accounts payable |
$ |
190,000 |
Accounts receivable |
|
136,000 |
|
Long-term debt |
|
977,000 |
Land |
|
785,000 |
|
Common stock |
|
1,020,000 |
Equipment (net) |
|
1,913,000 |
|
Retained earnings |
|
652,000 |
|
|
|
|
|
|
|
|
$ |
2,839,000 |
|
|
$ |
2,839,000 |
|
|
|
|
|
|
|
|
At the acquisition date, the following allocation was prepared: |
|
|
|
|
|
Fair value of consideration transferred |
|
|
$ |
1,881,000 |
Book value acquired |
|
|
|
1,672,000 |
|
|
|
|
|
Excess fair value over book value |
|
|
|
209,000 |
To in-process research and development |
$ |
65,000 |
|
|
To equipment (8-year remaining life) |
|
127,200 |
|
192,200 |
|
|
|
|
|
To goodwill (indefinite life) |
|
|
$ |
16,800 |
|
|
|
|
|
|
Although at acquisition date Picante had expected $65,000 in future benefits from Salsa’s in-process research and development project, by the end of 2012, it was apparent that the research project was a failure with no future economic benefits. |
On December 31, 2013, Picante and Salsa submitted the following trial balances for consolidation: |
|
|
Picante |
|
|
Salsa |
|
Sales |
$ |
(3,646,900 |
) |
$ |
(1,216,500 |
) |
Cost of goods sold |
|
1,702,500 |
|
|
775,000 |
|
Depreciation expense |
|
548,500 |
|
|
181,500 |
|
Subsidiary income |
|
(244,100 |
) |
|
0 |
|
|
|
|
|
|
||
Net income |
$ |
( 1,640,000 |
) |
$ |
(260,000 |
) |
|
|
|
|
|
|
|
Retained earnings 1/1/13 |
$ |
(3,047,500 |
) |
$ |
(899,000 |
) |
Net income |
|
(1,640,000 |
) |
|
(260,000 |
) |
Dividends paid |
|
200,000 |
|
|
25,500 |
|
|
|
|
|
|
|
|
Retained earnings 12/31/13 |
$ |
(4,487,500 |
) |
$ |
(1,133,500 |
) |
|
|
|
|
|
|
|
Cash |
$ |
169,300 |
|
$ |
-58,500 |
|
Accounts receivable |
|
880,000 |
|
|
189,000 |
|
Inventory |
|
925,000 |
|
|
617,000 |
|
Investment in Salsa |
|
2,265,700 |
|
|
0 |
|
Land |
|
3,407,500 |
|
|
797,000 |
|
Equipment (net) |
|
5,085,000 |
|
|
1,915,000 |
|
Goodwill |
|
353,000 |
|
|
0 |
|
|
|
|
|
|
|
|
Total assets |
$ |
13,085,500 |
|
$ |
3,459,500 |
|
|
|
|
|
|
|
|
Accounts payable |
$ |
(228,000 |
) |
$ |
(410,000 |
) |
Long-term debt |
|
(3,220,000 |
) |
|
(896,000 |
) |
Common stock |
|
(5,150,000 |
) |
|
(1,020,000 |
) |
Retained earnings 12/31/13 |
|
(4,487,500 |
) |
|
(1,133,500 |
) |
|
|
|
|
|
|
|
Total liabilities and equities |
$ |
(13,085,500 |
) |
$ |
(3,459,500 |
) |
|
|
|
|
|
|
|
|
Note: Parentheses indicate a credit balance.
a. |
Determine the investment in Salsa account balance as on December 31, 2013. |
b. |
Prepare a consolidated worksheet for Picante and Salsa as of December 31, 2013. (Leave no cells blank - be certain to enter "0" wherever required. Enter consolidation entries for investment in Salsa Company in the order of (S) Elimination of subsidiary’s stockholders’ equity, (A) Allocation of subsidiary’s acquisition-date excess fair values over book values and (I) Eliminates parent's equity in subsidiary's income. Input all amounts as positive values except for the credit balances which should be entered with the minus sign.) |
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