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Problem - On January 1, 2015, Casey Corporation exchanged $3,170,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems.
At the acquisition date, Casey prepared the following fair-value allocation schedule:
Fair value of Kennedy (consideration transferred)
$3,170,000
Carrying amount acquired
2,600,000
Excess fair value
$570,000
to buildings (undervalued)
$324,000
to licensing agreements (overvalued)
(198,000)
126,000
to goodwill (indefinite life)
$444,000
Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate financial records.
Accounts
Casey
Kennedy
Cash
$472,000
$184,500
Accounts receivable
1,235,000
316,000
Inventory
1,470,000
165,500
Investment in Kennedy
3,170,000
0
Buildings (net)
5,820,000
1,920,000
Licensing agreements
3,430,000
Goodwill
799,000
Total assets
$12,966,000
$6,016,000
Accounts payable
(336,000)
(406,000)
Long-term debt
(3,630,000)
(3,010,000)
Common stock
(3,000,000)
(1,000,000)
Additional paid-in capital
(500,000)
Retained earnings
(6,000,000)
(1,100,000)
Total liabilities and equities
$(12,966,000)
$(6,016,000)
Prepare a January 1, 2015, consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation.
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