Eliminating Entries, Bargain Gain Phelps, Inc. acquires all of the stock of Skelton Company for $8 million in cash. At the date of acquisition, Skelton's current assets had a book value of $5 million and a fair value of $3 million, its noncurrent assets had a book value of $45 million and a fair value of $20 million, and its liabilities had a book value of $30 million, which approximated fair value. Skelton also has previously unreported identifiable intangibles, valued at $17 million, that meet ASC Topic 805's criteria for recognition. Skelton's shareholders' equity consists of capital stock of $25 million and a retained loss of $5 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 Gain on acquisition Cash Ref. (E) → (R) Description Capital stock Retained earnings Investment in Skelton Debit 2,000,000 8,000,000 Investment in Skelton 0 10,000,000 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. Identifiable intangibles Investment in Skelton Current assets Noncurrent assets + ◆ Credit 수 Debit 25,000,000 0 0 17,000,000 10,000,000 0 0 0 0 Credit 0 5,000,000 20,000,000 0 0 2,000,000 25,000,000
Eliminating Entries, Bargain Gain Phelps, Inc. acquires all of the stock of Skelton Company for $8 million in cash. At the date of acquisition, Skelton's current assets had a book value of $5 million and a fair value of $3 million, its noncurrent assets had a book value of $45 million and a fair value of $20 million, and its liabilities had a book value of $30 million, which approximated fair value. Skelton also has previously unreported identifiable intangibles, valued at $17 million, that meet ASC Topic 805's criteria for recognition. Skelton's shareholders' equity consists of capital stock of $25 million and a retained loss of $5 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 Gain on acquisition Cash Ref. (E) → (R) Description Capital stock Retained earnings Investment in Skelton Debit 2,000,000 8,000,000 Investment in Skelton 0 10,000,000 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. Identifiable intangibles Investment in Skelton Current assets Noncurrent assets + ◆ Credit 수 Debit 25,000,000 0 0 17,000,000 10,000,000 0 0 0 0 Credit 0 5,000,000 20,000,000 0 0 2,000,000 25,000,000
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 for $8 million in cash. At the date of acquisition, Skelton's current assets had a book value of $5 million and a fair value of $3 million, its noncurrent
assets had a book value of $45 million and a fair value of $20 million, and its liabilities had a book value of $30 million, which approximated fair value. Skelton also has previously unreported identifiable
intangibles, valued at $17 million, that meet ASC Topic 805's criteria for recognition. Skelton's shareholders' equity consists of capital stock of $25 million and a retained loss of $5 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
Gain on acquisition
Cash
◆
(R)
Description
Retained earnings
Investment in Skelton
Debit
2,000,000
8,000,000
Investment in Skelton
0
10,000,000
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.
(E) Capital stock
Identifiable intangibles
Investment in Skelton
Current assets
Noncurrent assets
+
+
Credit
+
+
Debit
25,000,000
0
0
17,000,000
10,000,000
0
0
0
0
Credit
0
5,000,000
20,000,000
0
0
2,000,000
25,000,000
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