On 1/1/20×1, Petwoud Company acquired 100% of the $1 par value outstanding voting common stock of Supagud, Inc. for a cash payment of $600,000. At the acquisition date, the fair value of Petwoud Company’s common stock was $20 per share. Below is the summary balance sheet information of Supagud, Inc. at acquisition (1/1/20×1):
Accounts payable 60,000
Accounts receivable 50,000
Additional paid-in capital 60,000
Buildings (net) (20-year life) 140,000
Cash and short-term investments 70,000
Common stock 300,000
Equipment (net) (8-year life) 240,000
Intangible assets (indefinite life) 110,000
Long-term liabilities (mature 12/31/x3) 180,000
Retained earnings, 1/1/x1 120,000
Totals 720,000 720,000
Book value of net equity 480,000
During fiscal year-ending 12/31/20×1 and 12/31/20×2, Supagud, Inc. generated net income and paid dividends as follows:
Net income Dividends
20×1 $104,000 $13,000
20×2 $142,000 $30,000
As of 1/1/20×1, Supagud’s land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000. According to Petwoud Company’s analysis, they will record any excess of consideration paid over fair value of assets and liabilities acquired as a Patent asset to be amortized over 6 years.
A. Using the acquisition method and assuming that Petwoud dissolves Supagud, Inc. so it is no longer in business, prepare Petwoud Company’s journal entry to record the acquisition of Supagud, Inc. at 1/1/20×1.
For B. and C. below, assume Supagud remains in business as a separate operating company and that, for internal accounting purposes, Petwoud accounts for their investment in Supagud, Inc. using the equity method:
B. Prepare Petwoud Company’s journal entry to record the acquisition of Supagud, Inc. at 1/1/20×1.
C. Prepare Petwoud Company’s worksheet consolidation journal entries for:
i. December 31, 20×1 and
ii. December 31, 20×2.