Plaza, Inc., acquires 80 percent of the outstanding common stock of Stanford Corporation on January 1, 2021, in exchange for $900,000 cash. At the acquisition date, Stanford’s total fair value, including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date, Stanford's book value was $690,000.
Plaza, Inc., acquires 80 percent of the outstanding common stock of Stanford Corporation on January 1, 2021, in exchange for $900,000 cash. At the acquisition date, Stanford’s total fair value, including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date, Stanford's book value was $690,000.
Several individual items on Stanford’s financial records had fair values that differed from their book values as follows:
| Book Value | Fair Value | ||||||
| Trade names (indefinite life) | $ | 360,000 | $ | 383,000 | |||
| Property and equipment (net, 8-year remaining life) | 290,000 | 330,000 | |||||
| Patent (14-year remaining life) | 132,000 | 272,000 | |||||
For internal reporting purposes, Plaza, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2021, for both companies.
| Plaza | Stanford | ||||||
| Revenues | $ | (1,400,000 | ) | $ | (825,000 | ) | |
| Cost of goods sold | 774,000 | 395,750 | |||||
| 328,000 | 36,250 | ||||||
| Amortization expense | 0 | 28,000 | |||||
| Equity in income of Stanford | (280,000 | ) | 0 | ||||
| Net income | $ | (578,000 | ) | $ | (365,000 | ) | |
| $ | (1,275,000 | ) | $ | (530,000 | ) | ||
| Net income | (578,000 | ) | (365,000 | ) | |||
| Dividends declared | 300,000 | 50,000 | |||||
| Retained earnings, 12/31/21 | $ | (1,553,000 | ) | $ | (845,000 | ) | |
| Current assets | $ | 860,000 | $ | 432,250 | |||
| Investment in Stanford | 1,140,000 | 0 | |||||
| Trade names | 240,000 | 360,000 | |||||
| Property and equipment (net) | 1,030,000 | 253,750 | |||||
| Patents | 0 | 104,000 | |||||
| Total assets | $ | 3,270,000 | $ | 1,150,000 | |||
| Accounts payable | $ | (142,000 | ) | $ | (145,000 | ) | |
| Common stock | (300,000 | ) | (120,000 | ) | |||
| Additional paid-in capital | (1,275,000 | ) | (40,000 | ) | |||
| Retained earnings (above) | (1,553,000 | ) | (845,000 | ) | |||
| Total liabilities and equities | $ | (3,270,000 | ) | $ | (1,150,000 | ) | |
At year-end, there were no intra-entity receivables or payables.
Prepare a worksheet to consolidate the financial statements of Plaza, Inc., and its subsidiary Stanford.
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