Pushdown Accounting Assume a parent company acquires its subsidiary by paying $1,700,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Parent Parent Subsidiary Assets: Cash & receivables $ 800,000 $ 350,000 Inventory 600,000 200,000 Property & equipment, net 2,300,000 1,025,000 Equity investment 1,700,000 Licenses - 275,000 $ 5,400,000 $ 1,850,000 Liabilities and stockholders' equity: Current liabilities $ 400,000 $ 400,000 Other liabilities 300,000 - Note payable - 600,000 Common stock 1,670,000 100,000 APIC 1,430,000 200,000 Retained earnings 1,600,000 550,000 $ 5,400,000 $ 1,850,000 a. Compute the amount of goodwill implicit in the acquisition of the subsidiary. $Answer b. Assume the subsidiary elects to apply pushdown accounting immediately after the above financial statements were prepared. Provide the journal entries required for the subsidiary to apply pushdown accounting. Description Debit Credit Property & equipment, net Answer Answer Licenses Answer Answer Answer Answer Answer Answer Answer Answer To record AAP in subsidiary's standalone financial statements. Answer Answer Answer Answer Answer Answer To reclassify subsidiary's retained earnings. c. Prepare the consolidation entry or entries on the date of acquisition, assuming the subsidiary applied pushdown accounting. Description Debit Credit [E] Common stock Answer Answer APIC Answer Answer Answer Answer Answer Answer Answer Answer d. Prepare the consolidated balance sheet on the date of acquisition. Consolidated Balance Sheet Assets: Cash & receivables Answer Inventory Answer Property & equipment, net Answer Licenses Answer Answer Answer Answer Liabilities and stockholders' equity: Current liabilities Answer Other liabilities Answer Note payable Answer Common stock Answer APIC Answer Retained earnings Answer Answer PreviousSave AnswersNext

Pushdown Accounting Assume a parent company acquires its subsidiary by paying $1,700,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Parent Parent Subsidiary Assets: Cash & receivables $ 800,000 $ 350,000 Inventory 600,000 200,000 Property & equipment, net 2,300,000 1,025,000 Equity investment 1,700,000 Licenses - 275,000 $ 5,400,000 $ 1,850,000 Liabilities and stockholders' equity: Current liabilities $ 400,000 $ 400,000 Other liabilities 300,000 - Note payable - 600,000 Common stock 1,670,000 100,000 APIC 1,430,000 200,000 Retained earnings 1,600,000 550,000 $ 5,400,000 $ 1,850,000 a. Compute the amount of goodwill implicit in the acquisition of the subsidiary. $Answer b. Assume the subsidiary elects to apply pushdown accounting immediately after the above financial statements were prepared. Provide the journal entries required for the subsidiary to apply pushdown accounting. Description Debit Credit Property & equipment, net Answer Answer Licenses Answer Answer Answer Answer Answer Answer Answer Answer To record AAP in subsidiary's standalone financial statements. Answer Answer Answer Answer Answer Answer To reclassify subsidiary's retained earnings. c. Prepare the consolidation entry or entries on the date of acquisition, assuming the subsidiary applied pushdown accounting. Description Debit Credit [E] Common stock Answer Answer APIC Answer Answer Answer Answer Answer Answer Answer Answer d. Prepare the consolidated balance sheet on the date of acquisition. Consolidated Balance Sheet Assets: Cash & receivables Answer Inventory Answer Property & equipment, net Answer Licenses Answer Answer Answer Answer Liabilities and stockholders' equity: Current liabilities Answer Other liabilities Answer Note payable Answer Common stock Answer APIC Answer Retained earnings Answer Answer PreviousSave AnswersNext

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Pushdown Accounting

Assume a parent company acquires its subsidiary by paying $1,700,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary:

Parent

	Parent	Subsidiary
Assets:
Cash & receivables	$ 800,000	$ 350,000
Inventory	600,000	200,000
Property & equipment, net	2,300,000	1,025,000
Equity investment	1,700,000
Licenses	-	275,000
	$ 5,400,000	$ 1,850,000
Liabilities and stockholders' equity:
Current liabilities	$ 400,000	$ 400,000
Other liabilities	300,000	-
Note payable	-	600,000
Common stock	1,670,000	100,000
APIC	1,430,000	200,000
Retained earnings	1,600,000	550,000
	$ 5,400,000	$ 1,850,000

a. Compute the amount of goodwill implicit in the acquisition of the subsidiary.
$Answer

b. Assume the subsidiary elects to apply pushdown accounting immediately after the above financial statements were prepared. Provide the journal entries required for the subsidiary to apply pushdown accounting.

Description	Debit	Credit
Property & equipment, net	Answer	Answer
Licenses	Answer	Answer
Answer	Answer	Answer
Answer	Answer	Answer
To record AAP in subsidiary's standalone financial statements.
Answer	Answer	Answer
Answer	Answer	Answer
To reclassify subsidiary's retained earnings.

c. Prepare the consolidation entry or entries on the date of acquisition, assuming the subsidiary applied pushdown accounting.

Description	Debit	Credit
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer

d. Prepare the consolidated balance sheet on the date of acquisition.

Consolidated Balance Sheet
Assets:
Cash & receivables		Answer
Inventory		Answer
Property & equipment, net		Answer
Licenses		Answer
Answer		Answer
		Answer
Liabilities and stockholders' equity:
Current liabilities		Answer
Other liabilities		Answer
Note payable		Answer
Common stock		Answer
APIC		Answer
Retained earnings		Answer
		Answer

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Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Step 1

Pushdown accounting is an accounting method used in business combinations or acquisitions in which the subsidiary company, which is acquired by the parent company, applies the parent company's accounting principles to its financial statements. In other words, it is the revaluation of a subsidiary's assets and liabilities to reflect their fair value immediately after the acquisition by the parent company.

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