Question

А AA EE EE Аавьссос Аавьссос Аавьс Аавьсс Аав 1 Normal No Spac... Heading 1 Heading 2 Title Paragraph Styles 6 4. (20 pts) Gray Company purchased 100% of Orange Company on January 1, 2019 for $1,000,000 by issuing 100,000 shares of its $2 par common stock with a market value of $10 per share. The book value of Orange at the time was $800,000 with half of the excess attributed to goodwill and half attributed to undervalued equipment. There were direct expenses of $20,000 and indirect expenses of $30,000. a. Record the acquisition/consolidation on January 1, 2019 on the books of Gray. b. Assume that the balance sheets immediately after the acquisition are below. Show the elimination/consolidation entries to put them together on the worksheet. Do not extend the balances. C. Gray Orange Dr. Cr. I

Answer 1

Part 1

Event	General Journal	Debit	Credit
a	Merger Expense - Direct (charged to goodwill)	20,000
	Indirect expense (charged to income statement)	30,000
	Cash		50,000
	(To record direct and indirect expense)
b	Goodwill (100000+20000)	120,000
	Equipment	100,000
	Common stock	400,000
	Retained earnings	400,000
	Investment in Orange		1,000,000
	Merger Expense - Direct		20,000

Part 2

			Elimination entries
	Gray	Orange	Debit	Credit	Consolidation
Assets
Cash	100,000	50,000			150,000
Receivables	50,000	20,000			70,000
investment in orange	1,000,000			1,000,000	-
Property and equipment	600,000	830,000	100,000		1,530,000
Goodwill			120,000		120,000
Total assets	1,750,000	900,000			1,870,000
Liabiolity and Stockholder's equity
Liability
Payables	200,000	100,000			300,000
Stockholder's equity
Capital stock	500,000	400,000	400,000		500,000
additional paid in capital	800,000				800,000
Retained earnings	250,000	400,000	400,000	20,000	270,000
Total Stockholder's equity	1,550,000	800,000			1,570,000
Total Liabiolity and Stockholder's equity	1,750,000	900,000			1,870,000
Total of entries			1,020,000	1,020,000