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Additional Information (not reflected in the preceding figures)
• On December 31, Miller issues 50,000 shares of its $20 par value common stock for all of the outstanding shares of Richmond Company.
• As part of the acquisition agreement, Miller agrees to pay the former owners of Richmond $250,000 if certain profit projections are realized over the next three years. Miller calculates the acquisition-date fair value of this contingency at $100,000.
• In creating this combination, Miller pays $10,000 in stock issue costs and $20,000 in accounting and legal fees.
Required a. Miller’s stock has a fair value of $32 per share. Using the acquisition method:
1. Prepare the necessary journal entries if Miller dissolves Richmond so it is no longer a separate legal entity.
2. Assume instead that Richmond will retain separate legal incorporation and maintain its own accounting systems. Prepare a worksheet to consolidate the accounts of the two companies. b. If Miller’s stock has a fair value of $26 per share, describe how the consolidated balances would differ from the results in requirement ( a ).
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