Question

On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $200,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share 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 Tucker Company Company Book Value Book Cash Receivables Inventory Land Buildings (net) Equipment (net) Accounts payable Long-term liabilities Common stock-$1 par value Common stock-$20 par value Additional paid-in capital Retained earnings, 1/1/18 $ 60,00 20,000 90,000 140,000 180,000 220,008 50,000 (150,000) (40,000) (430,000) (200,eee) 270,000 360,000 200,000 420,000 160,000 (110,000) (120,0e0) (360,000) (420,000) (340,000)

Note: Parentheses indicate a credit balance.

In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $5,000, Land by $20,000, and Buildings by $30,000. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

1. Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.

2. To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

Answer 1

MARSHALL COMPANY AND CONSOLIDATED SUBSIDIARY Worksheet January 1, 2018 Consolidation Entries Consolidated Totals Marshall Company Tucker Compan Debit Accounts Cash Receivables Credit Invento Land Buildings (net Equipment (net Investment in Tucker Total Assets 18,000 270,000 360,000 200,000 420,000 160,000 515,000 1,943,000 20,000 90,000 140,000 [a] 180,000 [a] 220,000a] 38,000 360,000 505,000 400,000 670,000 210,000 5,000 20,000 30,000 50,000 515,000[ate] 700,000 2,183,000 Accounts Payable Long-term liabilities Common stock Additional paid in capital Retained Earnings 1/1/18 Total liabilities and owners equities 150,000) (630,000) (130,000) (528,000) (505,000) (1,943,000) 40,000 200,000 190,000 830,000 130,000 528,000 (505,000) (2,183,000) (120,000)l [e] 120,000 (340,000)| [e] (700,000) 340,000 515,000 515,000 Working Notes Entries Explanation: [e] Is to eliminate the stockholders' equity of Tucker limited [a] Is to record the net fair value of assets and liabilities of Tucker company