On January 1, 2018, Co. P acquired 90% of Co. S for $550,000, plus $15,000 in ac
ID: 2334172 • Letter: O
Question
On January 1, 2018, Co. P acquired 90% of Co. S for $550,000, plus $15,000 in acquisition costs. On the date of acquisition, Co. S had the following balance sheet:
Current Liabilities
An appraisal indicates that the following items have fair values that differed from their book values:
Immediately after the purchase, Co. P had the following balance sheet:
(1) Record the investment in Co. S.
(2) Prepare a value analysis schedule for the Investment in Co. S.
(3) Prepare a determination and distribution schedule for the investment in Co. S.
(4) Prepare all required elimination ertries for the January 1, 2018 consolidated worksheet in general journal form.
*Below is what I have for parts 1-3 so far, but I'm struggling with part 4 (something in 3 may be incorrect).
(1) Investment in State 550,000
Acquisition Expense 15,000
Cash 565,000
(2)
Value Analysis
Schedule
Company Implied
Value
Parent Price
(90%)
NCI Value
(10%)
Company Fair Value
611,111
550,000
61,111
Fair Value of Net
Assets (exclude G/W)
860,000
774,000
86,000
Gain on Acquisition
(248,889)
(22,400)
(24,889)
(3)
D&D
Schedule
Company Implied
Value
Parent Price
(90%)
NCI Value
(10%)
Fair Value of Subsidiary
611,111
550,000
61,111
Less BV of Interest Acquired:
Common Stock
400,000
Paid-In Capital
70,000
Retained Earnings
300,000
Total SH’s Equity
770,000
770,000
770,000
Interest Acquired
90%
10%
Book Value
693,000
77,000
Excess FV over BV
(158,889)
(143,000)
(15,889)
Adjustments to Identifiable Accounts:
Accounts Receivable
(10,000)
Credit
Inventory
20,000
Debit
Buildings
(50,000)
Credit
Equipment
(180,000)
Credit
Patent
300,000
Debit
Goodwill
(20,000)
Credit
Gain on Acquisition
(248,889)
Credit
Decrease on Bonds
30,000
Debit
Total
(158,889)
Assets Liabilities & Equity Accounts Receivable 150,000Current Liabilities
260,000 Inventory 180,000 Bonds Payable 250,000 Land 200,000 Common Stock, $1 Par 400,000 Buildings 550,000 PIC In Excess of Par 70,000 Acc. Deprecition (Bldg) (100,000) Retained Earnings 300,000 Equipment 400,000 Acc. Depreciation (Equip) (120,000) Goodwill 20,000 Total Assets 1,280,000 Total Liab. & Equity 1,280,000Explanation / Answer
Dear friend, Correct answer is below:
Ques 2)
You need to go from asset side to licability side. Not from what parent company invested in company S.
therefore below will be correct method
Ques 3)
Ques 4)
Particular Amount Total amount Fair value of assets: Accounts Receivable 140000 Inventory 200000 Land 200000 Buildings 400000 Equipment 100000 Patent 300000 Total value of assets (A) 1340000 Fair value of liability: Bonds Payable -220000 Current liability -260000 Total value fo licability (B) -480000 Total net fair value (C= A-B) 860000 90% of fair value (D=C*90%) 774000 Amount paid to buy (E) 550000 Capital reserve (D-E) i.e. gain on purchase 224000