Eliminating Entries, Bargain Gain Phelps, Inc. acquires all of the stock of Skelton Company by issuing 1 million shares of its capital stock with a fair value of $18/share. At the date of acquisition, Skelton's current assets had a book value of $5 million and a fair value of $4 million, its noncurrent assets had a book value of $45 million and a fair value of $25 million, and its liabilities had a book value of $20 million, which approximated fair value. Skelton also has previously unreported dentifiable intangibles, valued at $12 million, that meet ASC Topic 805's criteria for recognition. Skelton's shareholders' equity consists of capital stock of $38 million and a retained loss of $8 million (debit balance). Required a. Calculate the gain on acquisition and prepare Phelps' journal entry to record the acquisition on its own books. Enter answers in millions. Description Investment in Skelton Capital stock Gain on acquisition Ref. (E) Capital stock (R) + ✓ Check 수 ✓ b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Phelps and Skelton at the date of acquisition. Enter answers in millions. Description Retained earnings Investment in Skelton Identifiable intangibles Investment in Skelton Current assets Noncurrent assets Debit + + x 0✓ 0✓ + ✔ + Debit Credit 0x 0✓ 0✓ 18 ✔ x 0 ✓ 0 x 0x 0✓ 0✓ Credit 0✔ 0 x 0x 0 ✓ 0✔ 0x 0x
Eliminating Entries, Bargain Gain Phelps, Inc. acquires all of the stock of Skelton Company by issuing 1 million shares of its capital stock with a fair value of $18/share. At the date of acquisition, Skelton's current assets had a book value of $5 million and a fair value of $4 million, its noncurrent assets had a book value of $45 million and a fair value of $25 million, and its liabilities had a book value of $20 million, which approximated fair value. Skelton also has previously unreported dentifiable intangibles, valued at $12 million, that meet ASC Topic 805's criteria for recognition. Skelton's shareholders' equity consists of capital stock of $38 million and a retained loss of $8 million (debit balance). Required a. Calculate the gain on acquisition and prepare Phelps' journal entry to record the acquisition on its own books. Enter answers in millions. Description Investment in Skelton Capital stock Gain on acquisition Ref. (E) Capital stock (R) + ✓ Check 수 ✓ b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Phelps and Skelton at the date of acquisition. Enter answers in millions. Description Retained earnings Investment in Skelton Identifiable intangibles Investment in Skelton Current assets Noncurrent assets Debit + + x 0✓ 0✓ + ✔ + Debit Credit 0x 0✓ 0✓ 18 ✔ x 0 ✓ 0 x 0x 0✓ 0✓ Credit 0✔ 0 x 0x 0 ✓ 0✔ 0x 0x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Eliminating Entries, Bargain Gain
Phelps, Inc. acquires all of the stock of Skelton Company by issuing 1 million shares of its capital stock with a fair value of $18/share. At the date of acquisition, Skelton's current assets had a book value of $5 million and a fair
value of $4 million, its noncurrent assets had a book value of $45 million and a fair value of $25 million, and its liabilities had a book value of $20 million, which approximated fair value. Skelton also has previously unreported
identifiable intangibles, valued at $12 million, that meet ASC Topic 805's criteria for recognition. Skelton's shareholders' equity consists of capital stock of $38 million and a retained loss of $8 million (debit balance).
Required
a. Calculate the gain on acquisition and prepare Phelps' journal entry to record the acquisition on its own books.
Enter answers in millions.
Description
Investment in Skelton
Capital stock
Gain on acquisition
(R)
◆
◆
◆
Check
Retained earnings
Investment in Skelton
b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Phelps and Skelton at the date of acquisition.
Enter answers in millions.
Ref.
Description
(E) Capital stock
Identifiable intangibles
Investment in Skelton
Current assets
Noncurrent assets
◆
◆
Debit
◆
X
0✔
0✔
Credit
Debit
0✔
18 ✔
X
0 x
0✔
0✔
0 x
0 x
0✓
0✔
Credit
0✔
O O O O O O
X
X
0 ✓
0 ✓
0 x
0 x
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