Postacquisition balance sheet problem

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Reference no: EM13154973

On January 1, 2011 Marshall acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $200,000 in long-term liabilities and 32,000 shares of common stock having a par value of $1, but a fair value of $10 per share. Marshall paid $30,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $12,000 in connection with stock issuance costs.

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

Marshall company BV Tucker company BV
Cash........... $60000 $20000
Receivables..... 270000 90000
Inventory........ 360000 140000
Land..............200000 180000
Buildings(net).....420000 220000
Equipment(net)......160000 50000
Accounts payable....(150000) (40000)
Long-term liabilities(430000) (200000)
Commom stock-$1 par value(110000) -
Common stock-$20 par value - (120000)
Additional paid-in capital(360000) -0-
Retained earnings, 1/1/11 (420000) (340000)

In Marshall's appraisal of Tucker, it deemed two accounts to be undervalued on the subsidiary's books: Land by $20,000 and Buildings by $30,000. Tucker will remain a separate legal identity and operate as a wholly owned subsidiary. Marshall appropriately uses the US/IFRS acquisition accounting with the equity method. At the point of combination, the investment advisor discovered $5,000 impairment of goodwill which is immediately written off against Marshall's retained earnings.

a) Determine the amounts that Marshall Company would report in its postacquisition 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.

b) To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 2011.

Reference no: EM13154973

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