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prepare eliminating entries for the preparation of a consolidated balance sheet work 594169

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:

  1. Prepare the stock acquisition entry on the books of Patel Company, taking into account tax effects. Assume an income tax rate of 40%.
  2. Prepare eliminating entries for the preparation of a consolidated balance sheet workpaper on January 1, 2011.

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