Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
Question
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Chapter 7, Problem 1UTI
To determine

Book value:

Book value of the asset is found out after deducting accumulated depreciation from the recorded value of the asset. Recorded value is the value at asset enters the books of account of the organization.

The fair value of the asset:

The fair value of the asset is the amount at which two parties may enter into an agreement with open hand.

To Identify:

Whether there is excess of cost over book value and provide the accounting treatment.

Expert Solution & Answer
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Explanation of Solution

Compute excess of cost over book value:

  Excessofcostoverbookvalue=PurchaseconsiderationShareofparent=$650,000$510,000(1)=$140,000

Thus, the excess of the cost price over book value will be debited to goodwill.

Working note 1:

Compute the share of parent in total equity:

  Shareofparentcompany=Totalequity×PercentageofOwnership=($650,000+$200,000)×( Sharesofparentcompany Totalsharesissued×100)=$850,000×( 6,000 10,000×100)=$510,000

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