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Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, deferred tax liability) Assume that the parent company acquires its subsidiary by exchanging 116,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for PPE assets that are undervalued by $1 million, an unrecorded Customer List that the parent values at $200,000, and an unrecorded Brand Name asset valued at $500,000. In addition, the purchase and sale agreement provides for contingent consideration in the event that the subsidiary meets earnings targets. You feel that the fair value of that contingent consideration liability is $400,000 on the acquisition date. And, finally, assume that the tax basis of the PPE assets is equal to their book values, and your tax rate is 35%.

a. Prepare the journal entry that the parent makes to record the acquisition.

General Journal
Description	Debit	Credit
Equity investmentCustomer listBrand nameGoodwillContingent consideration liabilityCommon stockAPICRetained earnings
Equity investmentCustomer listBrand nameGoodwillContingent consideration liabilityCommon stockAPICRetained earnings
APIC

b. Given the following acquisition-date balance sheets for the parent and its subsidiary, prepare the consolidation spreadsheet.

				Elimination Entries
Balance Sheet	Parent	Subsidiary		Dr	Cr		Consolidated
Assets
Cash	$783,300	$104,000
Accounts receivable	384,000	696,000
Inventory	582,000	894,000
Equity investment	3,480,000					[E]
						[A]
Property, plant and equipment (PPE), net	14,899,600	1,654,000	[A]
Customer list			[A]
Brand name			[A]
Equity investmentCustomer listBrand nameGoodwillContingent consideration liabilityCommon stockAPICRetained earnings			[A]
	$20,128,900	$3,348,000
Liabilities and stockholders' equity
Accounts payable	$188,100	$127,000
Accrued liabilities	220,800	221,000
Long-term liabilities	2,000,000	1,000,000				[A]
Common stock	680,000	200,000	[E]
APIC	5,200,000	250,000	[E]
Retained earnings	11,840,000	1,550,000	[E]
	$20,128,900	$3,348,000

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