Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Item Phone Corporation Smart Corporation Cash $ 58,300 $ 22,000 Accounts Receivable 109,000 49,000 Inventory 144,000 79,000 Land 73,000 36,000 Buildings & Equipment 426,000 266,000 Less: Accumulated Depreciation (166,000) (75,000) Investment in Smart Corporation 97,300 Total Assets $ 741,600 $ 377,000 Accounts Payable $ 142,500 $ 26,000 Mortgage Payable 331,100 233,000 Common Stock 68,000 39,000 Retained Earnings 200,000 79,000 Total Liabilities & Stockholders’ Equity $ 741,600 $ 377,000 At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of $85,000, and buildings and equipment, which had a fair value of $206,000. At December 31, 20X4, Phone reported accounts payable of $13,400 to Smart, which reported an equal amount in its accounts receivable. Required: Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. Prepare a consolidated balance sheet worksheet.

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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Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

Item	Phone Corporation	Smart Corporation
Cash	$ 58,300	$ 22,000
Accounts Receivable	109,000	49,000
Inventory	144,000	79,000
Land	73,000	36,000
Buildings & Equipment	426,000	266,000
Less: Accumulated Depreciation	(166,000)	(75,000)
Investment in Smart Corporation	97,300
Total Assets	$ 741,600	$ 377,000
Accounts Payable	$ 142,500	$ 26,000
Mortgage Payable	331,100	233,000
Common Stock	68,000	39,000
Retained Earnings	200,000	79,000
Total Liabilities & Stockholders’ Equity	$ 741,600	$ 377,000

At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of $85,000, and buildings and equipment, which had a fair value of $206,000. At December 31, 20X4, Phone reported accounts payable of $13,400 to Smart, which reported an equal amount in its accounts receivable.

Required:

Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination.
Prepare a consolidated balance sheet worksheet.

Expert Solution

Step 1

Acquisition of Company: - Acquisition of Company refers to when one company purchases or acquires the business of another company. Under this, the size of the acquiring company is more than the size of the company which is acquired.

Acquisition of a company doesn't result in the formation of a new company.

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