Question

On January 1, 2009, Rand Corp. issued shares of its common stock to acquire all of the outstanding common stock of Spaulding Inc. Spaulding's book value was only $140,000 at the time, but Rand issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. Rand was willing to convey these shares because it felt that buildings (ten-year life) were undervalued on Spaulding's records by $60,000 while equipment (five-year life) was undervalued by $25,000. Any consideration transferred over fair value of identified net assets acquired is assigned to goodwill.
Following are the individual financial records for these two companies for the year ended December 31, 2012.

	Rand	Spaulding
Revenue	$372,000	$108,000
Expenses	-264,000	-72,000
Equity in subsidiary earnings	25,000	0
Net income	$133,000	$36,000
Retained earnings (jan 1st, 2012)	$765,000	$102,000
Net income	133,000	36,000
Dividends paid	-84,000	-24,000
Retained earnings (dec 31st, 2012)	$814,000	$114,000
Current Assets	$150,000	$22,000
Investments in Spaulding	242,000	0
Buildings (net)	525,000	85,000
Equipment (net)	389,250	129,000
Total assets	$1,306,250	$236,000
Liabilities	$82,250	$50,000
Common Stock	360,000	72,000
Additional paid-in capital	50,000	0
Retained earnings (dec 31st, 2012)	814,000	114,000
Total Liabilities and stockholders equity	$1,306,250	$236,000

Prepare a consolidation worksheet for this business combination.

Answer 1

Consolidated worksheet for business combination is as below.

	Rand	Splauding	Elimination/Increase(Decrease)	Consolidated Statement
Current Asset	150000	22000	0	172000
Building	525000	85000	60000	670000
Equipment	389250	129000	25000	543250
Investment in Splauding	242000		-242000	0
Goodwill			56000	56000
Total Asset	1306250	236000	-101000	1441250
Liabilities	82250	50000	0	132250
Common Stock	360000	72000	-72000	360000
Additional Paid in Capital	50000	0	0	50000
Retained Earning	814000	114000	-29000	899000
Total Liabilities	1306250	236000	-101000	1441250