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Category > Management Posted 17 Feb 2018 My Price 8.00

Salsa Corporation

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.

Answers

Maurice Tutor

(5)

Status NEW Posted 17 Feb 2018 08:02 PM My Price 8.00

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