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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