Solved) - E4-15 Balance Sheet Worksheet With Differential Blank ... - Free Printable

Problem Analysis

The problem involves preparing a consolidated balance sheet for Blank Corporation after it acquired 100% of Faith Corporation's common stock. The key steps involve:
1. Identifying the assets and liabilities of both companies.
2. Adjusting the fair values of specific assets (inventory and buildings & equipment) for Faith Corporation.
3. Eliminating intercompany transactions and balances (e.g., the investment in Faith Corporation by Blank Corporation).
4. Preparing the consolidation entries and the consolidated balance sheet.

Given Information

- Blank Corporation purchased 100% of Faith Corporation's common stock for $189,000 on December 31, 20X2.
- Fair values of certain assets of Faith Corporation differ from their book values:
- Inventory: Book value = $60,000; Fair value = $84,000.
- Buildings & Equipment (net): Book value = $150,000; Fair value = $165,000.
- Both companies' balance sheets are provided.

Solution

#### Step 1: Identify Key Figures
From the balance sheets:
- Blank Corporation:
- Total Assets: $632,000
- Investment in Faith Corporation Stock: $189,000
- Total Liabilities & Stockholders' Equity: $632,000
- Faith Corporation:
- Total Assets: $265,000
- Total Liabilities & Stockholders' Equity: $265,000

#### Step 2: Adjust Fair Values for Faith Corporation
We need to adjust the book values of Faith Corporation's inventory and buildings & equipment to their fair values:
- Inventory: Book value = $60,000; Fair value = $84,000. Adjustment = $84,000 - $60,000 = $24,000.
- Buildings & Equipment (net): Book value = $150,000; Fair value = $165,000. Adjustment = $165,000 - $150,000 = $15,000.

These adjustments will be recorded as part of the goodwill calculation or directly in the consolidated balance sheet.

#### Step 3: Calculate Goodwill
Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired.
- Purchase Price: $189,000
- Fair Value of Net Assets of Faith Corporation:
- Cash: $18,000
- Accounts Receivable: $37,000
- Inventory (fair value): $84,000
- Buildings & Equipment (net, fair value): $165,000
- Total Assets (fair value): $18,000 + $37,000 + $84,000 + $165,000 = $304,000
- Total Liabilities: $35,000 + $80,000 = $115,000
- Net Assets (fair value): $304,000 - $115,000 = $189,000

Since the purchase price ($189,000) equals the fair value of the net assets acquired ($189,000), there is no goodwill.

#### Step 4: Prepare Consolidation Entries
The consolidation entries eliminate the investment account and recognize the fair values of Faith Corporation's assets and liabilities. The entries are as follows:

1. Eliminate the Investment Account:
```
Debit: Investment in Faith Corporation Stock $189,000
Credit: Common Stock (Faith) $60,000
Retained Earnings (Faith) $90,000
Goodwill $39,000
```

However, since there is no goodwill in this case, the entry simplifies to:
```
Debit: Investment in Faith Corporation Stock $189,000
Credit: Common Stock (Faith) $60,000
Retained Earnings (Faith) $90,000
Additional Paid-in Capital $39,000
```

2. Adjust Fair Values:
```
Debit: Inventory $24,000
Debit: Buildings & Equipment (net) $15,000
Credit: Retained Earnings (Faith) $39,000
```

#### Step 5: Prepare the Consolidated Balance Sheet
Combine the adjusted assets, liabilities, and equity of both companies, eliminating intercompany balances.

| Item | Blank Corporation | Faith Corporation (Adjusted) | Consolidated |
|------------------------------|-----------------------|-----------------------------------|------------------|
| Assets | | | |
| Cash | $26,000 | $18,000 | $44,000 |
| Accounts Receivable | $87,000 | $37,000 | $124,000 |
| Inventory | $110,000 | $84,000 | $194,000 |
| Buildings & Equipment (net) | $220,000 | $165,000 | $385,000 |
| Total Assets | $632,000 | $304,000 | $936,000 |
| Liabilities | | | |
| Accounts Payable | $92,000 | $35,000 | $127,000 |
| Notes Payable | $150,000 | $80,000 | $230,000 |
| Total Liabilities | $242,000 | $115,000 | $357,000 |
| Stockholders' Equity | | | |
| Common Stock | $100,000 | $60,000 | $160,000 |
| Additional Paid-in Capital | $0 | $39,000 | $39,000 |
| Retained Earnings | $290,000 | $90,000 | $380,000 |
| Total Stockholders' Equity| $390,000 | $189,000 | $579,000 |
| Total Liabilities & Equity| $632,000 | $265,000 | $936,000 |

Final Answer

#### a. Consolidation Entry
```
Debit: Investment in Faith Corporation Stock $189,000
Credit: Common Stock (Faith) $60,000
Retained Earnings (Faith) $90,000
Additional Paid-in Capital $39,000

Debit: Inventory $24,000
Debit: Buildings & Equipment (net) $15,000
Credit: Retained Earnings (Faith) $39,000
```

#### b. Consolidated Balance Sheet
```
Consolidated Balance Sheet as of December 31, 20X2

Assets:
Cash $44,000
Accounts Receivable $124,000
Inventory $194,000
Buildings & Equipment (net) $385,000
Total Assets $936,000

Liabilities:
Accounts Payable $127,000
Notes Payable $230,000
Total Liabilities $357,000

Stockholders' Equity:
Common Stock $160,000
Additional Paid-in Capital $39,000
Retained Earnings $380,000
Total Stockholders' Equity $579,000

Total Liabilities & Equity $936,000
```

Final Answer: \boxed{936,000}