Question

Blank Corporation acquired 100 percent of Faith Corporation’s common stock on December 31, 20X2, for $150,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

Item Blank Corporation Faith Corporation
Assets
Cash $ 65,000 $ 18,000
Accounts Receivable 87,000 37,000
Inventory 110,000 60,000
Buildings & Equipment (net) 220,000 150,000
Investment in Faith Corporation Stock 150,000
Total Assets $ 632,000 $ 265,000
Liabilities and Stockholders’ Equity
Accounts Payable $ 92,000 $ 35,000
Notes Payable 150,000 80,000
Common Stock 100,000 60,000
Retained Earnings 290,000 90,000
Total Liabilities & Stockholders’ Equity $ 632,000 $ 265,000
At the date of the business combination, the book values of Faith’s net assets and liabilities approximated fair value. Assume that Faith Corporation’s accumulated depreciation on buildings and equipment on the acquisition date was $30,000.
Required:
a. Give the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b. Prepare a consolidated balance sheet worksheet. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

Answer 1

A1.

Dr Investment 150,000

Cr Cash 150,000

2.

Dr Accumulated Depreciation 30,000

Cr Building & Equipment 30,000

B.Total Assets $ 567,000 $ 265,000 $30,000 $180,000 $747,000

Total Liabilities & Stockholders’ Equity $ 632,000 $ 265,000 $150,000 $0 $ 747,000

Step-by-step explanation:

a) Blank Corporation Journal Entries:

1.

Dr Investment 150,000

Cr Cash 150,000

2.

Dr Accumulated Depreciation 30,000

Cr Building & Equipment 30,000

b)

BLANK AND SUBSIDIARY

Consolidated Balance sheet Worksheet

December 31, 20x2

Blank Faith Debit Credit Consolidated

Cash $ 65,000 $ 18,000 $0 $0 $83,000

Accounts Receivable

87,000 37,000 $0 $0 $124,000

Inventory 110,000 60,000 $0 $0$ $170,000

Buildings & Equipment (net) 220,000 150,000 30,000 30,000 370,000

Investment in Faith Corporation Stock

150,000 $0 $0 150,000 $0

Total Assets $ 567,000 $ 265,000 $30,000 $180,000 $747,000

Blank Faith Debit Credit Consolidated

Liabilities and Stockholders’ Equity

Accounts Payable $ 92,000 $ 35,000 $0 $0 $127,000

Notes Payable 150,000 80,000 $0 $0 $230,000

Common Stock 100,000 60,000 $60,000 $0 $100,000

Retained Earnings 290,000 90,000 $90,000 $0 $290,000

Total Liabilities & Stockholders’ Equity $ 632,000 $ 265,000 $150,000 $0 $ 747,000