Push down accounting. On January 1, 20X7, Knight Corporation purchased all the outstanding shares of Craig Company for $950,000. It has been decided that Craig Company will use push down accounting principles to account for this transaction. The current balance sheet is stated at historical cost. The following balance sheet was prepared for Craig Company on January 1, 20X7:
|
Assets |
Liabilities and Equity |
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|
Current assets: |
Current liabilities |
$90,000 |
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|
Cash |
$80,000 |
Long term liabilities: |
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|
Accounts receivable |
260,000 |
Bonds payable |
$300,000 |
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|
Prepaid expenses |
20,000 |
$360,000 |
Deferred taxes |
50,000 |
350,000 |
|
Property, plant, and equipment: |
Stockholders’ equity: |
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|
Land |
$200,000 |
Common stock ($10 par) |
$300,000 |
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|
Building (net) |
600,000 |
800,000 |
Retained earnings |
420,000 |
720,000 |
|
Total assets |
$1,160,000 |
Total liabilities and equity |
$1,160,000 |
Knight Corporation received the following appraisals for Craig Company’s assets and liabilities:
|
Accounts receivable |
$280,000 |
|
Land |
230,000 |
|
Building (net) |
700,000 |
|
Bonds payable |
280,000 |
|
Deferred tax liability |
40,000 |
1. Record the investment.
2. Record the adjustments on the books of Craig Company.
3. Prepare the entries that would be made on the consolidated worksheet to eliminate the investment.