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Fair Value: 412,500 (Higher) Proportionate Share: 1,037,773 X 30% 311,332

P Corporation acquired 70% of S Corporation for $1,237,500. The fair values of S Corporation's assets and liabilities at acquisition differed from their book values. Goodwill of $612,227 was recognized, with $551,059 allocated to P Corporation and $101,168 to the non-controlling interest. Working papers were prepared to eliminate the investment account and step up S Corporation's assets and liabilities to fair value at acquisition. This resulted in a consolidated statement of financial position showing total assets of $12,420,851.

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35 views3 pages

Fair Value: 412,500 (Higher) Proportionate Share: 1,037,773 X 30% 311,332

P Corporation acquired 70% of S Corporation for $1,237,500. The fair values of S Corporation's assets and liabilities at acquisition differed from their book values. Goodwill of $612,227 was recognized, with $551,059 allocated to P Corporation and $101,168 to the non-controlling interest. Working papers were prepared to eliminate the investment account and step up S Corporation's assets and liabilities to fair value at acquisition. This resulted in a consolidated statement of financial position showing total assets of $12,420,851.

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Artisan
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PROBLEM 2

1. Record the transaction to account the investment

P Corporation’s Books Debit Credit

Investment in subsidiary 1,237,500


Common Stock 750,000
Additional paid in capital 487,500

Additional paid in capital 35,000


Cash 35,000
To record stock issuance costs

Comparison of Book Value and Acquisition date fair value of S Corporation

Assets Book Value Acquisition date fair values


Cash 88,888 88,888
Accounts Receivable 248,888 248,888
Inventory 188,888 149,999
Trademark 48,888 48,888
Franchise - 39,999
Land 488,888 599,999
Building (net) 348,888 348,888
Total Assets 1,413,328 1,525,549

Liabilities and Equity


Accounts Payable 88,888 88,888
Bonds Payable 398,888 398,888

Common Stock 488,888 -


Additional paid in capital 248,888 -
Retained earnings 187,776 -

Total Net Assets 1,037,773

Fair Value: 412,500 (higher)


Proportionate share: 1,037,773 x 30% = 311,332

Parent (70%) Non-Controlling Total


Interest (30%)
Consideration transferred 1,237,500 412,500 1,650,000
Acquisition date fair value 726,441 (311,332) (1,037,773)
of net assets acquired
Goodwill 511,059 101,168 612,227
511,059/612,227 = 83% (Parent)
101,168/612,227 = 17% (Non-controlling interest)
The allocation of goodwill is not on the proper ratio which may be an indication of impairment of goodwill. The
allocation of impairment is 83:17.
2. Prepare working paper elimination entries to prepare the consolidated financial
statements

Debit Credit
Common Stock 488,888
Additional paid in capital 248,888
Retained earnings 187,776
Investment in subsidiary (70%) 647,886
Non-controlling interest (30%) 277,666
To eliminate the account of S

Franchise 39,999
Land 111,111
Inventory 38,889
Investment in subsidiary (70%) 78,555
Non-controlling interest (30%) 33,666
To reflect acquisition date fair values of assets
and liabilities of the acquiree

Goodwill 612,227
Investment in subsidiary 551,059
Non-controlling interest 101,168
To recognize goodwill

The investment in subsidiary account balance is entirely eliminated ( 1,237,500 - 647,886


- 78,555 - 551,059 = 0)

Debit Credit
Common Stock 488,888
Additional paid in capital 248,888
Retained earnings 187,776
Franchise 39,999
Land 111,111
Goodwill 612,227
Inventory 38,889
Investment in subsidiary (70%) 1,237,500
Non-controlling interest (30%) 412,500
3. Prepare the consolidated statement of financial position at the date of acquisition

After eliminating the investment account, the consolidated statement of financial


position on December 31, 2020, at the date of acquisition:

Assets
Cash 2,511,701
Accounts Receivable 1,247,902
Inventory 1,463,130
Goodwill 612,227
Trademark 48,888
Franchise 39,999
Land 3,814,783
Building (net) 2,682,221
Total Assets 12,420,851

Liabilities and Equity


Accounts Payable 2,088,887
Bonds Payable 1,877,520

Common Stock (P1 par) 4,950,698


Additional paid in capital 1,606,508
Retained earnings 1,484,738
Non-controlling interest 412,500

Total Liabilities and Equity 12,420,851

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