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 |
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Chapter 2 Solutions
ADVANCED ACCOUNTING
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