7-Morningside Co. acquires, at book value, Glacier Industries on January 2, 2019, by issuing 40,000 common shares, $1 par, with a market value on the acquisition date of $10 per share. The book values of Glacier’s individual net assets approximate their fair values. The separate financial statements of the parent and subsidiary, for the year ended December 31, 2019, are presented below. Morningside Co.Glacier IndustriesSales revenue$850,000$400,000Cost of goods sold-635,000-268,000Gross profit215,000132,000Operating expenses-156,400-90,500Equity income41,500 _Net Income$100,100$41,500 Retained Earnings, 1/1/19$550,000$219,600Net income100,10041,500Dividends-41,000-13,650Retained Earnings, 12/31/19$609,100$247,450 Cash and receivables$450,000$25,000Inventory355,00012,570Equity investment427,850 Property, plant & equipment (Net)751,950412,390Total Assets$1,984,800$449,960 Accounts payable$371,200$54,000Accrued liabilities487,50068,110Notes payable 20,000Common stock30,00021,900Additional paid-in capital487,00038,500Retained Earnings, 12/31/19609,100247,450Total Liabilities and Equities$1,984,800$449,960Required:a. Prepare the journal entry on Morningside's books to record the acquisition.b. Prepare a schedule showing how the balance in Equity Investment was arrived at.c. Prepare all consolidation entries for the year ending December 31, 2019.

Consolidation represents the acquisition of one company by another company.

Answered: Morningside Co. acquires, at book…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 24E

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7-Morningside Co. acquires, at book value, Glacier Industries on January 2, 2019, by issuing 40,000 common shares, $1 par, with a market value on the acquisition date of $10 per share. The book values of Glacier’s individual net assets approximate their fair values. The separate financial statements of the parent and subsidiary, for the year ended December 31, 2019, are presented below.

	Morningside Co.	Glacier Industries
Sales revenue	$850,000	$400,000
Cost of goods sold	-635,000	-268,000
Gross profit	215,000	132,000
Operating expenses	-156,400	-90,500
Equity income	41,500	_
Net Income	$100,100	$41,500

Retained Earnings, 1/1/19	$550,000	$219,600
Net income	100,100	41,500
Dividends	-41,000	-13,650
Retained Earnings, 12/31/19	$609,100	$247,450

Cash and receivables	$450,000	$25,000
Inventory	355,000	12,570
Equity investment	427,850
Property, plant & equipment (Net)	751,950	412,390
Total Assets	$1,984,800	$449,960

Accounts payable	$371,200	$54,000
Accrued liabilities	487,500	68,110
Notes payable		20,000
Common stock	30,000	21,900
Additional paid-in capital	487,000	38,500
Retained Earnings, 12/31/19	609,100	247,450
Total Liabilities and Equities	$1,984,800	$449,960

Required:

a. Prepare the journal entry on Morningside's books to record the acquisition.
b. Prepare a schedule showing how the balance in Equity Investment was arrived at.
c. Prepare all consolidation entries for the year ending December 31, 2019.

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