EXERCISE 3-5 Treasury Stock Held by Subsidiary LO 8Pool Company purchased 90% of the outstanding common stock of Spruce Company on December31, 2019, for cash. At that time the balance sheet of Spruce Company was as follows:Current assets $1,050,000Plant and equipment 990,000Land 170,000Total assets $2,210,000Liabilities $ 820,000Common stock, $20 par value 900,000Other contributed capital 440,000Retained earnings 150,000Total 2,310,000Less treasury stock at cost, 5,000 shares 100,000Total equities $2,210,000Required:Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on December 31, 2019, assuming:(1) The purchase price of the stock was $1,400,000. Assume that any difference between thebook value of net assets and the value implied by the purchase price relates to subsidiary land.(2) The purchase price of the stock was $1,160,000. Assume that the subsidiary land has a fairvalue of $180,000, and the other assets and liabilities are fairly valued.
EXERCISE 3-5
Pool Company purchased 90% of the outstanding common stock of Spruce Company on December
31, 2019, for cash. At that time the
Current assets $1,050,000
Plant and equipment 990,000
Land 170,000
Total assets $2,210,000
Liabilities $ 820,000
Common stock, $20 par value 900,000
Other contributed capital 440,000
Retained earnings 150,000
Total 2,310,000
Less treasury stock at cost, 5,000 shares 100,000
Total equities $2,210,000
Required:
Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on December 31, 2019, assuming:
(1) The purchase price of the stock was $1,400,000. Assume that any difference between the
book value of net assets and the value implied by the purchase price relates to subsidiary land.
(2) The purchase price of the stock was $1,160,000. Assume that the subsidiary land has a fair
value of $180,000, and the other assets and liabilities are fairly valued.
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