On January 1, 2025, Porter Company purchased an 80% interest in Salem Company for $260,000. On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500. An examination of Salem Company's balance sheet revealed the following comparisons bet- ween book and fair values:
On January 1, 2025, Porter Company purchased an 80% interest in Salem Company for $260,000. On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500. An examination of Salem Company's balance sheet revealed the following comparisons bet- ween book and fair values:
Chapter1: Financial Statements And Business Decisions
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EXERCISE 5-4
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Allocation of Cost and Workpaper Entries at Date of Acquisition LO 2
On January 1, 2025, Porter Company purchased an 80% interest in Salem Company for $260,000.
On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500.
An examination of Salem Company's balance sheet revealed the following comparisons bet-
ween book and fair values:
Inventory
Other current assets
Equipment
Land
Book Value
$ 30,000
50,000
300,000
200,000
261
Fair Value
$ 35,000
55,000
350,000
200,000
Required:
A. Determine the amounts that should be allocated to Salem Company's assets on the
consolidated financial statements workpaper on January 1, 2025.
B. Prepare the January 1, 2025, consolidated financial statements workpaper entries to elimi-
nate the investment account and to allocate the difference between book value and the value
implied by the purchase price..
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