On
January 1, 2013, Pinnacle Corporation exchanged $3,200,000 cash for 100
percent of the outstanding voting stock of Strata Corporation. Pinnacle
plans to maintain Strata as a wholly owned subsidiary with separate
legal status and accounting information systems.
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At the acquisition date, Pinnacle prepared the following fair-value allocation schedule: |
Fair value of Strata (consideration transferred) | $ | 3,200,000 | |||
Carrying amount acquired | 2,600,000 | ||||
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Excess fair value | $ | 600,000 | |||
to buildings (undervalued) | $ | 300,000 | |||
to licensing agreements (overvalued) | (100,000) | 200,000 | |||
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to goodwill (indefinite life) | $ | 400,000 | |||
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Immediately
after closing the transaction, Pinnacle and Strata prepared the
following postacquisition balance sheets from their separate financial
records.
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Accounts | Pinnacle | Strata | |||||
Cash | $ | 433,000 | $ | 122,000 | |||
Accounts receivable | 1,210,000 | 283,000 | |||||
Inventory | 1,235,000 | 350,000 | |||||
Investment in Strata | 3,200,000 | 0 | |||||
Buildings (net) | 5,572,000 | 1,845,000 | |||||
Licensing agreements | 0 | 3,000,000 | |||||
Goodwill | 350,000 | 0 | |||||
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Total assets | $ | 12,000,000 | $ | 5,600,000 | |||
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Accounts payable | (300,000 | ) | (375,000 | ) | |||
Long-term debt | (2,700,000 | ) | (2,625,000 | ) | |||
Common stock | (3,000,000 | ) | (1,000,000 | ) | |||
Additional paid-in capital | 0 | (500,000 | ) | ||||
Retained earnings | (6,000,000 | ) | (1,100,000 | ) | |||
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Total liabilities and equities | $ | (12,000,000 | ) | $ | (5,600,000 | ) | |
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Prepare a January 1, 2013, consolidated balance sheet for Pinnacle Corporation and its subsidiary Strata Corporation. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values.)
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PINNACLE COMPANY AND CONSOLIDATED SUBSIDIARY STRATA Consolidated Balance Sheet January 1, 2013 | |||
Assets | Liabilities and Owners' Equity | ||
Cash | $ | Accounts payable | $ |
Accounts receivable | Long-term debt | ||
Inventory | Common stock | ||
Buildings (net) | Additional paid-in capital | ||
Licensing agreements | Retained earnings | ||
Goodwill | |||
| | ||
Total assets | $ | Total liabilities and equities | $ |
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Explanation:
PINNACLE COMPANY AND CONSOLIDATED SUBSIDIARY STRATA Worksheet for a Consolidated Balance Sheet January 1, 2013 | ||||||||||||||
Accounts | Pinnacle | Strata | Adjust. & Elim. | Consolidated | ||||||||||
Cash | 433,000 | 122,000 | 555,000 | |||||||||||
Accounts receivable | 1,210,000 | 283,000 | 1,493,000 | |||||||||||
Inventory | 1,235,000 | 350,000 | 1,585,000 | |||||||||||
Investment in Strata | 3,200,000 | 0 | (S) | 2,600,000 | ||||||||||
(A) | 600,000 | 0 | ||||||||||||
Buildings (net) | 5,572,000 | 1,845,000 | (A) | 300,000 | 7,717,000 | |||||||||
Licensing agreements | 0 | 3,000,000 | (A) | 100,000 | 2,900,000 | |||||||||
Goodwill | 350,000 | 0 | (A) | 400,000 | 750,000 | |||||||||
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Total assets | 12,000,000 | 5,600,000 | 15,000,000 | |||||||||||
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Accounts payable | (300,000 | ) | (375,000 | ) | (675,000) | |||||||||
Long-term debt | (2,700,000 | ) | (2,625,000 | ) | (5,325,000) | |||||||||
Common stock | (3,000,000 | ) | (1,000,000 | ) | (S) | 1,000,000 | (3,000,000) | |||||||
Additional paid-in capital | 0 | (500,000 | ) | (S) | 500,000 | 0 | ||||||||
Retained earnings | (6,000,000 | ) | (1,100,000 | ) | (S) | 1,100,000 | (6,000,000) | |||||||
| | | | | | | | | | | ||||
Total liabilities and equities | (12,000,000 | ) | (5,600,000 | ) | 3,300,000 | 3,300,000 | (15,000,000) | |||||||
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The consolidation entries are designed to: |
• | Eliminate the stockholders’ equity accounts of the subsidiary (S) |
• | Record all subsidiary assets and liabilities at fair value (A) |
• | Recognize the goodwill indicated by the acquisition fair value (A) |
• | Eliminate the Investment in Strata (S, A) |