Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Willistonâs common stock. Dickinson Corporation will issue 15,000 shares of its $5 par common stock, with a fair value of $30 per share, in exchange for all 10,000 outstanding shares of Williston Companyâs voting common stock. The acquisition meets the criteria for a tax-free exchange as to the seller. Because of this, Dickinson Corporation will be limited for future tax returns to the book value of the depreciable assets. Dickinson Corporation falls into the 30% tax bracket. The appraisal of the assets of Williston Company shows that the inventory has a fair value of $120,000, and the depreciable fixed assets have a fair value of $250,000 and a 10-year life. Any remaining excess is attributed to goodwill. Williston Company has the following balance sheet just before the acquisition: Williston Company Balance Sheet December 31, 2016
Assets Liabilities & Equities Cash $ 40,000
Current Liabilities $ 50,000
Accounts Receivable 150,000
Bonds Payable 100,000
Inventory 100,000
Common Stock ($10 par) 100,000
Depreciable Assets 210,000
Retained Earnings 250,000
Required: a. Prepare a value analysis and a determination and distribution of excess schedule. b. Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.
Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Willistonâs common stock. Dickinson Corporation will issue 15,000 shares of its $5 par common stock, with a fair value of $30 per share, in exchange for all 10,000 outstanding shares of Williston Companyâs voting common stock. The acquisition meets the criteria for a tax-free exchange as to the seller. Because of this, Dickinson Corporation will be limited for future tax returns to the book value of the depreciable assets. Dickinson Corporation falls into the 30% tax bracket. The appraisal of the assets of Williston Company shows that the inventory has a fair value of $120,000, and the depreciable fixed assets have a fair value of $250,000 and a 10-year life. Any remaining excess is attributed to goodwill. Williston Company has the following balance sheet just before the acquisition: Williston Company Balance Sheet December 31, 2016
Assets Liabilities & Equities Cash $ 40,000
Current Liabilities $ 50,000
Accounts Receivable 150,000
Bonds Payable 100,000
Inventory 100,000
Common Stock ($10 par) 100,000
Depreciable Assets 210,000
Retained Earnings 250,000
Required: a. Prepare a value analysis and a determination and distribution of excess schedule. b. Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.
Related questions
Determining ending balances of accounts on the consolidated balance sheet
Assume that the parent company acquires its subsidiary by exchanging 75,400 shares of its Common Stock, with a fair value on the acquisition date of $30 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 subsidiaryâs assets and liabilities at an amount equaling their book values except for a building that is undervalued by $480,000, an unrecorded License Agreement with a fair value of $230,000, and an unrecorded Customer List owned by the subsidiary with a fair value of $120,000. Any further discrepancy between the purchase price and the book value of the subsidiaryâs Stockholdersâ 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? (see table numbered 1-7 to answer)
| Balance Sheet | Parent | Subsidiary |
|---|---|---|
| Assets | ||
| Cash | $728,400 | $181,440 |
| Accounts receivable | 307,200 | 375,840 |
| Inventory | 465,600 | 482,760 |
| Equity investment | 2,262,000 | |
| Property, plant and equipment (PPE), net | 2,000,000 | 893,160 |
| Total Assets | $5,763,200 | $1,933,200 |
| Liabilities and stockholdersâ equity | ||
| Accounts payable | $150,480 | $114,300 |
| Accrued liabilities | 176,640 | 198,900 |
| Long-term liabilities | 1,062,320 | 540,000 |
| Common stock | 176,000 | 108,000 |
| APIC | 2,992,000 | 135,000 |
| Retained earnings | 1,205,760 | 837,000 |
| Total Liabilities and stockholdersâ equity | $5,763,200 | $1,933,200 |
| 1. | Accounts Receivable $_________ | |
| 2. | Equity Investment $_________ |
| 3. | PPE, net $________ | |
| 4. | Goodwill $________ | |
| 5. | Common Stock $________ | |
| 6. | APIC $________ | |
| 7. | Retained Earnings | $________ |
b. What intangible assets will be reported on the consolidated balance sheet and at what amounts?
| License Agreement $________ | |
| Customer List $________ Goodwill $________ |
Using the data in the Option 2 Spreadsheet(linked at the bottom of the page), perform the accounting requiredfor the acquisition of Little, Inc. by Big, Inc. This is an 80%acquisition, where the book value of the assets acquired is lessthan the acquisition price. Within the worksheet, you are to:
1. Select an accounting method (either cost or equity) andexplain why you selected this method
2. Perform the required journal entries
3. Complete the consolidation worksheet
4. Prepare the consolidated balance sheet in good form
| Big CompanyBalance Sheet | Which accountingmethod is most appropriate for representing an investment of thistype? | Prepare Elimination Entriesfor Stock Acquisition | ||||||||
| Assets, Liabilities & Equities | Book Value | Account | DR | CR | ||||||
| Cash | $2,100,000 | |||||||||
| AR | $10,000 | |||||||||
| Inventory | $200,000 | |||||||||
| Land | $40,000 | |||||||||
| PP&E | $400,000 | |||||||||
| Accumulated Depreciation | -$150,000 | |||||||||
| Patent | $0 | |||||||||
| Total Assets | $2,600,000 | Prepare thejournal entries for a 80% Asset Acquisition (using Big CompanyCash) | ||||||||
| AP | $100,000 | |||||||||
| Common Stock ($10 par) | $450,000 | Account | DR | CR | ||||||
| Additional Paid In Capital | $600,000 | |||||||||
| Retained Earnings | $1,450,000 | |||||||||
| Total Liabilities &Equity | $2,600,000 | Prepare thejournal entries for a 80% Acquisition by issuing 10,000 shares ofBig Company Stock | Big Company Balance Sheet (Consolidated) | |||||||
| Little Company BalanceSheet | Assets, Liabilities & Equities | |||||||||
| Assets, Liabilities & Equities | Book Value | Account | DR | CR | Cash | |||||
| Cash | $35,000 | Investment in Little | AR | |||||||
| AR | $10,000 | Common Stock | Inventory | |||||||
| Inventory | $65,000 | Additional Paid In Capital | Land | |||||||
| Land | $40,000 | Allocation of Excess Schedule | PP&E (net) | |||||||
| PP&E | $400,000 | Accumulated Depreciation | ||||||||
| Accumulated Depreciation | -$150,000 | Goodwill | ||||||||
| Patent | $0 | Patent | ||||||||
| Total Assets | $400,000 | Total Assets | ||||||||
| AP | $100,000 | AP | ||||||||
| Common Stock | $100,000 | Common Stock ($10 par) | ||||||||
| Additional Paid In Capital | $50,000 | Additional Paid In Capital | ||||||||
| Retained Earnings | $150,000 | Retained Earnings | ||||||||
| Total Liabilities &Equity | $400,000 | NCI | ||||||||
| Total Liabilities & Equity | ||||||||||
| Assumethat all noncash assets have a Fair Value that is 10% greater thanBook Value | ||||||||||
