Assume that the parent company acquires its subsidiary byexchanging 84,000 shares of its $2 par value Common Stock, with afair value on the acquisition date of $38 per share, for all of theoutstanding voting shares of the investee. In its analysis of theinvestee company, the parent values all of the subsidiary’s assetsand liabilities at an amount equaling their book values except foran unrecorded Trademark with a fair value of $240,000, anunrecorded Video Library valued at $600,000, and PatentedTechnology with a fair value of $125,000.

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

General Journal
Description	Debit	Credit
AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
Common stock	Answer	Answer
AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer

b. Given the following acquisition-date balance sheets of theparent and the subsidiary, prepare the consolidation entries.

Balance Sheet						Parent		Subsidiary
Assets
Cash						$514,020		$265,160
Accounts receivable						450,300		633,360
Inventory						650,000		813,540
Equity investment						3,192,000		-
Property, plant & equipment						10,600,000		1,505,140
						$15,406,320		$3,217,200
Liabilities and stockholders' equity
Accounts payable						$150,480		$177,800
Accrued liabilities						176,640		309,400
Long-term liabilities						3,840,000		910,000
Common stock						428,400		182,000
APIC						3,276,000		227,500
Retained earnings						7,534,800		1,410,500
						$15,406,320		$3,217,200

ConsolidationJournal
	Description	Debit	Credit
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
[A]	Trademark	Answer	Answer
	Video library	Answer	Answer
	Patented technology	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer
	AnswerEquity investmentAPICCashRetained earningsGoodwill	Answer	Answer

c. Prepare the consolidation spreadsheet.

ConsolidationWorksheet
			Parent		Subsidiary			Debit			Credit			Consolidated
Assets
Cash			$514,020		$265,160									$Answer
Accounts receivable			450,300		633,360									Answer
Inventory			650,000		813,540									Answer
Equity investment			3,192,000		-					[E]	$Answer			Answer
										[A]	Answer
PPE, net			10,600,000		1,505,140									Answer
Trademark							[A]	Answer						Answer
Video library							[A]	Answer						Answer
Patented technology							[A]	Answer						Answer
Goodwill			-		-		[A]	Answer						Answer
			$15,406,320		$3,217,200									$Answer
Liabilities and equity
Accounts payable			$150,480		$177,800									$Answer
Accrued liabilities			$176,640		$309,400									Answer
Long-term liabilities			$3,840,000		$910,000									Answer
Common stock			$428,400		$182,000		[E]	$Answer						Answer
APIC			$3,276,000		$227,500		[E]	$Answer						Answer
Retained earnings			$7,534,800		$1,410,500		[E]	$Answer						Answer
			$15,406,320		$3,217,200			$Answer			$Answer			$Answer

d. Where were the intangible assets on the parent or subsidiary’sbalance sheets?

On the parent's balance sheet embedded in the equity investmentaccount. On the subsidiary's balance sheet, each intangible assetis listed.

On the parent's balance sheet embedded in the equity investmentaccount. After the consolidation process is complete, eachintangible asset is listed on the consolidated balance sheet.

On the subsidiary's balance sheet embedded in retained earnings.After the consolidation process is complete, each intangible assetis listed on the consolidated balance sheet.