Question

Packer Company acquired 75% of the shares of Skye Company for $50,000 in cash. The fair value of the noncontrolling interest is $15,000. At the date of acquisition, the fair values of Skye’s reported net assets equal their book values, but Skye has previously unreported in-process R&D valued at $1,000. The trial balances of Packer and Skye just prior to acquisition appear below.

	Packer	Skye
	Dr (Cr)
Current assets	$ 65,000	$ 10,000
Plant & equipment, net	450,000	186,000
Liabilities	(395,000)	(130,000)
Capital stock	(40,000)	(85,000)
Retained earnings	(75,000)	15,000
Accumulated other comprehensive loss (income)	(5,000)	4,000
Total	$           0	$           0

Required

a.         Calculate the gain on acquisition and prepare the journal entry Packer makes to record the acquisition.

b.         Prepare a working paper to consolidate Packer and Skye at the date of acquisition.

c.          Present the consolidated balance sheet at the date of acquisition.

Answer 1

Part A

Fair value of identifiable net assets (10000+186000-130000)	$66000
Acquisition cost	(50000)
Fair value of noncontrolling interest	(15000)
Gain on acquisition	$1000

Packer’s acquisition entry:

Account titles and explanation	Debit	Credit
Investment in Skye	51000
Cash		50000
Gain on acquisition		1000

Part B

	Packer Dr (Cr)	Skye Dr (Cr)	Dr.	Cr.	Consol. Dr (Cr)
Current assets	15000	10000			25000
Plant & equipment, net	450000	186000			636000
Investment in Skye	51000			51000 (E)	0
Liabilities	(395000)	(130000)			(525000)
Capital stock	(40000)	(85000)	85000 (E)		(40000)
Retained earnings	(76000)	15000		15000 (E)	(76000)
AOCI	(5000)	4000		4000 (E)	(5000)
Noncontrolling interest in equity				15000 (E)	(15000)
Total	0	0	$85000	$85000	0

Retained earnings = 75000+1000 = 76000

Part C

PACKER COMPANY and SKYE COMPANY Consolidated Balance Sheet Date of Acquisition
Assets		Liabilities & Equity
Current assets	25000	Liabilities	525000
Plant & equipment, net	636000	Capital stock	40000
		Retained earnings	76000
		Accumulated other comprehensive income	5000
		Equity to controlling interest	121000
		Noncontrolling interest in equity	15000
		Total equity	136000
Total Assets	$661000	Total liabilities & equity	$661000