2-McKinney Company acquires an 60% interest in its Sandstone for a purchase price of $1.000,000. The excess of the purchase price over the book value of the Sandstone’s Stockholders’ Equity is allocated to a building (in PPE, net) that is worth $212,250 more than its book value, an unrecorded Patent that the parent valued at $125,000, and Goodwill of $348,417, 60% of which is allocated to the parent.The parent and the Sandstone report the following balance sheets on the acquisition date: McKinneySandstone McKinneySandstone Cash$1,500,000$300,000 Current Liabilities$750,000$300,000Accounts receivable1,597,500240,000 Long-term Liabilities1,268,222410,000Inventory2,689,550275,000 Common Stock235,00075,000Equity Investment1,000,000 APIC5,472,211156,000PPE, net6,008,510876,000 Retained Earnings5,070,127750,000 $12,795,560$1,691,000 $12,795,560$1,691,000Required: Prepare the consolidation journal entries on the acquisition date.

The question is based on the concept of Financial Accounting.

Answered: -McKinney Company acquires an 60%…

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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2-McKinney Company acquires an 60% interest in its Sandstone for a purchase price of $1.000,000. The excess of the purchase price over the book value of the Sandstone’s Stockholders’ Equity is allocated to a building (in PPE, net) that is worth $212,250 more than its book value, an unrecorded Patent that the parent valued at $125,000, and Goodwill of $348,417, 60% of which is allocated to the parent.

The parent and the Sandstone report the following balance sheets on the acquisition date:

	McKinney	Sandstone		McKinney	Sandstone

Cash	$1,500,000	$300,000	Current Liabilities	$750,000	$300,000
Accounts receivable	1,597,500	240,000	Long-term Liabilities	1,268,222	410,000
Inventory	2,689,550	275,000	Common Stock	235,000	75,000
Equity Investment	1,000,000		APIC	5,472,211	156,000
PPE, net	6,008,510	876,000	Retained Earnings	5,070,127	750,000
	$12,795,560	$1,691,000		$12,795,560	$1,691,000