Tuesday 23 October 2012

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:

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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