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On January 1 2010 Picante Corporation acquired 100 percent of the outstanding voting stock of Salsa Corporation for $1765000 cash On the acquisition date Salsa had the following balance sheet

On January 1, 2010, Picante Corporation acquired 100 percent of the outstanding voting stock of Salsa Corporation for $1,765,000 cash. On the acquisition date, Salsa had the following balance sheet:

Cash

$14,000

Accounts payable

$120,000

Accounts receivable

100,000

Long-term debt

930,000

Land

700,000

Common stock

1,000,000

Equipment (net)

1,886,000

Retained earnings

650,000

$2,700,000

$2,700,000

At the acquisition date, the following allocation was prepared:

Fair value of consideration transferred

$1,765,000

Book value acquired

1,650,000

Excess fair value over book value

115,000

To in-process research and development

$44,000

To equipment (8-yr. remaining life) .

56,000

100,000

To goodwill (indefinite life)

$15,000

Although at acquisition date Picante had expected $44,000 in future benefits from Salsa’s inprocess research and development project, by the end of 2010, it was apparent that the research project was a failure with no future economic benefits. On December 31, 2011, Picante and Salsa submitted the following trial balances for consolidation:

Picante

Salsa

Sales

($3,500,000)

($1,000,000)

Cost of goods sold

1,600,000

630,000

Depreciation expense

540,000

160,000

Subsidiary income

03,000

–0–

Net income

($1,563,000)

($210,000)

Retained earnings 1/1/11

($3,000,000)

($800,000)

Net income

1,563,000

210,000

Dividends paid

200,000

25,000

Retained earnings 12/31/11

($4,363,000)

($985,000)

Cash

$228,000

$50,000

Accounts receivable

840,000

155,000

Inventory

900,000

580,000

Investment in Salsa

2,042,000

–0–

Land

3,500,000

700,000

Equipment (net)

5,000,000

1,700,000

Goodwill

290,000

–0–

Total assets

$12,800,000

$3,185,000

Accounts payable

($193,000)

($400,000)

Long-term debt

3,094,000

-800,000

Common stock

5,150,000

1,000,000

Retained earnings 12/31/11

4,363,000

985,000

Total liabilities and equities .

($12,800,000)

($3,185,000)

a. Show how Picante derived its December 31, 2011, Investment in Salsa account balance.

b. Prepare a consolidated worksheet for Picante and Salsa as of December 31, 2011.

Jul 11 2020 Read more Less More

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