Reference no: EM132859621

Question - On January 1, 2021, a parent company acquired 25,000 shares of the outstanding common stock of a subsidiary company by issuing the parent common stock ($2 par value) to the subsidiary stockholders in a 1:1 ratio. The market price of the parent stock on the date of acquisition is $50 per share. As part of the acquisition, the parent agreed to pay (on March 15, 2022) an extra $20 per share to the subsidiary's selling shareholders if the subsidiary's operations achieved $500,000 in net income during the year ended December 31, 2021. The fair value of this provision is $10 per share on January 1, 2021. The subsidiary only earned $475,000 in net income during the year ended December 31, 2021, so the earn-out expired worthless. The stockholder's equity section of the subsidiary at January 1, 2021, is Common stock ($4 par) $ 100,000 APIC 900,000 Retained earnings 375,000 $ 1,375,000 The fair values of the net assets of the subsidiary are equal to their book values except for the following: Book Value Fair Value Inventories $ 260,000 $ 350,000 Land 368,000 408,000 Patents 152,000 212,000 Long-term notes payable 100,000 90,000 Assume that the tax bases of the net assets are equal to their consolidated financial bases & that the transaction is a taxable business combination.

Required - Prepare any journal entries on the books of the parent and the subsidiary for the acquisition on January 1, 2021?