a.
Prepare the
a.
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Explanation of Solution
An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. Acquisition accounting is a set of formal directives defining how an acquired company's assets, liabilities, non-controlling interest (NCI) and
The required journal entry to record acquisition is as follows:
Date | Account title and Explanation | Post Ref | Debit ($) | Credit ($) |
Equity investment | ||||
Common stock | ||||
APIC | ||||
(To record the acquisition) |
Table (1)
Working Notes:
Number of shares issued by the parent company of its par value of $2 is
Fair value per share is $ 25.
Calculate the equity investment in subsidiary:
b.
Prepare the consolidated
b.
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Explanation of Solution
Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and
A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.
The consolidated balance sheet on the date of acquisition is shown below:
Consolidation entries | ||||||||||
Parents | Subsidiary | Dr | Cr | Consolidated | ||||||
Assets | ||||||||||
Cash | $200,000 | $80,000 | $280,000 | |||||||
300,000 | 120,000 | 420,000 | ||||||||
Inventory | 700,000 | 600,000 | 1,300,000 | |||||||
Equity investment | 1,500,000 | [E] | 880,000 | 0 | ||||||
[A] | 620,000 | |||||||||
PPE, net | 2,000,000 | 1,000,000 | [A] | 100,000 | $3,100,000 | |||||
Customer List | [A] | 160,000 | 160,000 | |||||||
Brand name | [A] | 240,000 | 240,000 | |||||||
Goodwill | [A] | 220,000 | 220,000 | |||||||
$4,700,000 | $1,800,000 | $5,720,000 | ||||||||
Liabilities’ and Equity | ||||||||||
Accounts payable | $150,000 | $120,000 | $270,000 | |||||||
Accrued liabilities | 250,000 | 200,000 | 450,000 | |||||||
Long-term liabilities | 1,600,000 | 600,000 | 2,200,000 | |||||||
[A] | 100,000 | 100,000 | ||||||||
Common stock | 500,000 | 80,000 | [E] | 80,000 | 500,000 | |||||
APIC | 1,000,000 | 200,000 | [E] | 200,000 | 1,000,000 | |||||
1,200,000 | 600,000 | [E] | 600,000 | 1,200,000 | ||||||
$4,700,000 | $1,800,000 | 1,600,000 | 1,600,000 | $5,720,000 | ||||||
Working Notes:
Number of shares issued by the parent company of its par value of $2 is
Fair value per share is $ 25.
Property, Plant and Equipment (PPE) assets are undervalued by
Unrecorded Customer List valued at $160,000.
Unrecorded Brand name asset valued at $240,000.
Effective tax rate is 20%.
Total book tax difference of $500,000 is established.
Calculate deferred tax liability:
Calculate the fair value of the identifiable net assets (FVINA):
Calculate goodwill:
Particulars | Amount ($) | |
Purchase price | ||
Less: Fair value of identifiable net assets | ||
Less: Deferred tax liability | ||
Goodwill |
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Chapter 2 Solutions
ADVANCED ACCOUNTING
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