Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 27,500 shares of its Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that it feels is undervalued by $250,000, an unrecorded License Agreement that the parent values at $125,000, and an unrecorded Customer List owned by the subsidiary that the parent values at $50,000. Any further discrepancy between the purchase price and the book value of the subsidiary's Stockholders' Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition.
a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts will each of the following be reported on the consolidated balance sheet?
Balance Sheet Parent Subsidiary
Assets
Cash $455,250 $100,800
Accounts receivable 192,000 208,800
Inventory 291,000 268,200
Equity investment 1,100,000
Property, plant and equipment (PPE), net 1,399,800 496,200
$3,438,050 $1,074,000
Liabilities and stockholders' equity
Accounts payable 594,050 $63,500
Accrued liabilities 110,400 110,500
Long-term liabilities 500,000 300,000
Common stock 110,000 60,000
APIC
Retained earnings 753,600 465,000
$3,438,050 $1,074,000
1, Accounts Receivable $ 400,800
2. Equity Investment $
3. PPE, net
4. Goodwill
5. Common Stock
6. APIC
7. Retained Earnings $