a.
Prepare the
a.

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.

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 |
Want to see more full solutions like this?
Chapter 2 Solutions
ADVANCED ACCOUNTING
- What is the depreciation for year 2 ?arrow_forwardOn May 1, Dark Horizons Inc. had a beginning cash balance of $200. April sales were $500, and May sales were $600. During May, the firm had cash expenses of $150 and payments on accounts payable of $300. The firm's accounts receivable period is 30 days. What is Dark Horizons Inc.'s beginning cash balance on June 1?arrow_forwardANSWER?arrow_forward
- Serfass Corporation's contribution format income statement for July appears below: Sales Variable expenses $307,800 $153,900 Contribution margin $153,900 Fixed expenses $40,010 Net operating income $113,890 The degree of operating leverage is closest to: a. 0.37 b. 0.74 c. 2.00 d. 1.35arrow_forwardDon't give me incorrect solutionarrow_forwardBudgeted factory overhead costs:100000, actual factory overhead costs:102000arrow_forward
- Calculate the annual depreciation charge.arrow_forwardHito’s Auto Spa has $95,000 of fixed costs and variable costs equal to 65% of sales. How much total sales are required to achieve a net income of $160,000? Helparrow_forwardOslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales Variable expenses $22,400 12,800 Contribution margin 9,600 Fixed expenses 7,968 Net operating income $1,632 What is the degree of operating leverage?arrow_forward
- Tech Solutions, Inc. is looking to achieve a net income of 18 percent of sales. Here’s the firm’s profile: Unit sales price is $12; variable cost per unit is $7; total fixed costs are $50,000. What is the level of sales in units required to achieve a net income of 18 percent of sales?arrow_forwardGeneral Accountingarrow_forwardAccurate Answerarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





