On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $265,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $29,500 to accountants, lawyers, and brokers for assistance in the acquisition and another $14,500 in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Marshall Company Book Value Tucker Company Book Value Cash $ 60,600 $ 31,200 Receivables 295,000 108,000 Inventory 413,000 177,000 Land 243,000 191,000 Buildings (net) 491,000 262,000 Equipment (net) 230,000 72,300 Accounts payable (162,000 ) (62,400 ) Long-term liabilities (501,000 ) (265,000 ) Common stock—$1 par value (110,000 ) Common stock—$20 par value (120,000 ) Additional paid-in capital (360,000 ) 0 Retained earnings, 1/1/21 (599,600 ) (394,100 ) Note: Parentheses indicate a credit balance. In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $5,000, Land by $14,400, and Buildings by $25,000. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

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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On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $265,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $29,500 to accountants, lawyers, and brokers for assistance in the acquisition and another $14,500 in connection with stock issuance costs.

Prior to these transactions, the balance sheets for the two companies were as follows:

	Marshall Company Book Value		Tucker Company Book Value
Cash	$	60,600		$	31,200
Receivables		295,000			108,000
Inventory		413,000			177,000
Land		243,000			191,000
Buildings (net)		491,000			262,000
Equipment (net)		230,000			72,300
Accounts payable		(162,000	)		(62,400	)
Long-term liabilities		(501,000	)		(265,000	)
Common stock—$1 par value		(110,000	)
Common stock—$20 par value					(120,000	)
Additional paid-in capital		(360,000	)		0
Retained earnings, 1/1/21		(599,600	)		(394,100	)

Note: Parentheses indicate a credit balance.

In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $5,000, Land by $14,400, and Buildings by $25,000. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.

Determine the amounts that Marshall Company would report in its postacquisition consolidated balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.
To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2021.

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