Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. Thefollowing information pertains to Wheal Company on the date of acquisition:CASE 5-1Accounting Entries forConsolidation ofIntercorporateBook ValueFair ValueInvestments$ 40,00060,00050,000Property, plant, and equipment (net).... 100,000$ 40,00055,00075,000200,00030,000CashAccounts receivable.Inventory..Secret formula (patent)...Total assets..$250,000$400,000$ 30,000$ 30,00022,000Accounts payableAccrued employee pensions.Long-term debt ..Capital stock..Other contributed capitalRetained earnings...20,00040,000100,00025,00038,00035,000Total liabilities and equity.$250,000$ 90,000Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) ofits own stock to the shareholders of Wheal Company to consummate the transaction, and WhealCompany becomes a wholly owned, consolidated subsidiary of Axel Corporation.Required:a. Prepare journal entries for Axel Corp. to record the acquisition of Wheal Company stock assuming purchaseaccounting.CHECK(b) Cr. Investment inWheal for $110,000 in (1),and $350,000 total in (2)b. Prepare the worksheet entries for Axel Corp. to eliminate the investment in Wheal Company stock in preparationfor a consolidated balance sheet at December 31, Year 4, assuming (1) pooling accounting and (2) purchaseaccounting.c. Calculate consolidated retained earnings at December 31, Year 4 (Axel's retained earnings at this date are$150,000), assuming:(1) Axel Corp. uses the pooling method for this business combination.(2) Axel Corp. uses the purchase method for acquisition of Wheal Company.

Journal entry is the primary entry that records the transaction initially.

Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition: Book Value Fair Value $ 40,000 $ 40,000 55,000 Cash .... Accounts receivable.. Inventory..... Property, plant, and equipment (net).... 100,000 Secret formula (patent).. 60,000 50,000 75,000 200,000 30,000 Total assets.. $250,000 $400,000 Accounts payable Accrued employee pensions.. Long-term debt .... Capital stock.. $ 30,000 20,000 40,000 $ 30,000 22,000 38,000 100,000

Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition: Book Value Fair Value $ 40,000 $ 40,000 55,000 Cash .... Accounts receivable.. Inventory..... Property, plant, and equipment (net).... 100,000 Secret formula (patent).. 60,000 50,000 75,000 200,000 30,000 Total assets.. $250,000 $400,000 Accounts payable Accrued employee pensions.. Long-term debt .... Capital stock.. $ 30,000 20,000 40,000 $ 30,000 22,000 38,000 100,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The
following information pertains to Wheal Company on the date of acquisition:
CASE 5-1
Accounting Entries for
Consolidation of
Intercorporate
Book Value
Fair Value
Investments
$ 40,000
60,000
50,000
Property, plant, and equipment (net).... 100,000
$ 40,000
55,000
75,000
200,000
30,000
Cash
Accounts receivable.
Inventory..
Secret formula (patent)...
Total assets..
$250,000
$400,000
$ 30,000
$ 30,000
22,000
Accounts payable
Accrued employee pensions.
Long-term debt ..
Capital stock..
Other contributed capital
Retained earnings...
20,000
40,000
100,000
25,000
38,000
35,000
Total liabilities and equity.
$250,000
$ 90,000
Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) of
its own stock to the shareholders of Wheal Company to consummate the transaction, and Wheal
Company becomes a wholly owned, consolidated subsidiary of Axel Corporation.
Required:
a. Prepare journal entries for Axel Corp. to record the acquisition of Wheal Company stock assuming purchase
accounting.
CHECK
(b) Cr. Investment in
Wheal for $110,000 in (1),
and $350,000 total in (2)
b. Prepare the worksheet entries for Axel Corp. to eliminate the investment in Wheal Company stock in preparation
for a consolidated balance sheet at December 31, Year 4, assuming (1) pooling accounting and (2) purchase
accounting.
c. Calculate consolidated retained earnings at December 31, Year 4 (Axel's retained earnings at this date are
$150,000), assuming:
(1) Axel Corp. uses the pooling method for this business combination.
(2) Axel Corp. uses the purchase method for acquisition of Wheal Company.

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