Deferred Tax Effects, Acquisition Entry and Eliminating Entries
Patel Company issued 95,000 shares of $1 par value common stock (market value of $6/share) for 95% of the common stock of Seely Company on January 1, 2011. Seely Company had the following assets, liabilities, and owners” equity at that time:
|
Book Value/Tax Basis |
Fair Value |
Difference |
|
|
Cash |
$ 20,000 |
$ 20,000 |
$–0– |
|
Accounts receivable |
112,000 |
112,000 |
-0- |
|
Inventory (LIFO) |
82,000 |
134,000 |
52,000 |
|
Land |
30,000 |
55,000 |
25,000 |
|
Plant assets (net) |
392,000 |
463,000 |
71,000 |
|
Total assets |
$636,000 |
$784,000 |
$148,000 |
|
Allowance for uncollectible accounts |
$ 10,000 |
$ 10,000 |
$-0- |
|
Accounts payable |
54,000 |
54,000 |
-0- |
|
Bonds payable |
200,000 |
180,000 |
20,000 |
|
Common stock, $1 par value |
80,000 |
||
|
Other contributed capital |
132,000 |
||
|
Retained earnings |
160,000 |
||
|
Total equities |
$636,000 |
||
Required:
- Prepare the stock acquisition entry on the books of Patel Company, taking into account tax effects. Assume an income tax rate of 40%.
- Prepare eliminating entries for the preparation of a consolidated balance sheet workpaper on January 1, 2011.