Question 1

Use the following information to answer questions 
On January 1, 2013, Poole Company purchased 75% of the common stock of Swimmer Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2013.
-What is the amount of total assets?

Accepted Answer

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Question 2

Use the following information to answer questions 
On January 1, 2013, Poole Company purchased 75% of the common stock of Swimmer Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2013.
-What amount of goodwill will be reported?

Accepted Answer

Goodwill is calculated as the excess of the purchase price over the fair value of the net identifiable assets acquired. The correct amount of goodwill reported is $26,667.

Question 3

In what account is the difference between book value and the value implied by the purchase
price recorded on the books of the investor? In what account is the "excess of implied over fair value" recorded?

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Question 4

Use the following information to answer questions 
On January 1, 2013, Poole Company purchased 75% of the common stock of Swimmer Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2013.
-What amount of inventory will be reported?

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Question 5

Pruin Corporation acquired all of the voting stock of Satto Corporation on January 1, 2013, for $210,000 when Satto had common stock of $150,000 and retained earnings of $24,000.The excess of implied over book value was allocated $9,000 to inventories that were sold in 2013, $12,000 to equipment with a 4-year remaining useful life under the straight-line method, and the remainder to goodwill.
Financial statements for Pruitt and Satto Corporations at the end of the fiscal year ended December 31, 2014 (two years after acquisition), appear in the first two columns of the partially completed consolidated statements workpaper.Pruin Corp.has accounted for its investment in Satto using the partial equity method of accounting.
Required:
Complete the consolidated statements workpaper for Pruin Corporation and Satto Corporation for December 31, 2014.
Pruin Corporation and Satto Corporation
Consolidated Statements Workpaper
at December 31, 2014

Accepted Answer

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Question 6

The parent company's share of the fair value of the net assets of a subsidiary may exceed acquisition cost.How must this excess be treated in the preparation of consolidated financial statements?

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Question 7

Pennington Corporation purchased 80% of the voting common stock of Stafford Corporation for $3,200,000 cash on January 1, 2013.On this date the book values and fair values of Stafford Corporation's assets and liabilities were as follows:  
Required:
Prepare a schedule showing how the difference between Stafford Corporation's implied value and the book value of the net assets acquired should be allocated.

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Question 8

Pullman Corporation acquired a 90% interest in Sleeter Company for $6,500,000 on January 1 2013.At that time Sleeter Company had common stock of $4,500,000 and retained earnings of $1,800,000.The balance sheet information available for Sleeter Company on January 1, 2013, showed the following:  
The equipment had a remaining useful life of ten years.Sleeter Company reported $240,000 of net income in 2013 and declared $60,000 of dividends during the year.
Required:
Prepare the workpaper entries assuming the cost method is used, to eliminate dividends, eliminate the investment account, and to allocate and depreciate the difference between implied and book value for 2013.

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Question 9

On January 1, 2013, Preston Corporation acquired an 80% interest in Spiegel Company for $2,400,000.At that time Spiegel Company had common stock of $1,800,000 and retained earnings of $800,000.The book values of Spiegel Company's assets and liabilities were equal to their fair values except for land and bonds payable.The land's fair value was $120,000 and its book value was $100,000.The outstanding bonds were issued on January 1, 2005, at 9% and mature on January 1, 2015.The bond principal is $600,000 and the current yield rate on similar bonds is 8%.
Required:
Prepare the workpaper entries necessary on December 31, 2013, to allocate, amortize, and depreciate the difference between implied and book value.

Accepted Answer

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Question 10

Plain Corporation acquired a 75% interest in Swampy Company on January 1, 2013, for $2,000,000.The book value and fair value of the assets and liabilities of Swampy Company on that date were as follows:  
The property and equipment had a remaining life of 6 years on January 1, 2013, and the deferred charge was being amortized over a period of 5 years from that date.Common stock was $1,500,000 and retained earnings was $900,000 on January 1, 2013.Plain Company records its investment in Swampy Company using the cost method.
Required:
Prepare, in general journal form, the December 31, 2013, workpaper entries necessary to:
A.Eliminate the investment account.
B.Allocate and amortize the difference between implied and book value.

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Question 11

How do you determine the amount of "the difference between book value and the value implied by the purchase price" to be allocated to a specific asset of a less than wholly owned subsidiary?

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Question 12

On January 1, 2013, Pilsner Company acquired an 80% interest in Smalley Company for $3,600,000.On that date, Smalley Company had retained earnings of $800,000 and common stock of $2,800,000.The book values of assets and liabilities were equal to fair values except for the following: $\begin{array}{lll}&\text { Book Value }&\text { Fair Value }\
\text { Inventory } & \$ 50,000 & \$ 85,000 \
\text { Equipment (net) } & 540,000 & 720,000 \
\text { Land } & 300,000 & 660,000
\end{array}$ 
The equipment had an estimated remaining useful life of 8 years.One-half of the inventory was sold in 2013 and the remaining half was sold in 2014.Smalley Company reported net income of $240,000 in 2013 and $300,000 in 2014.No dividends were declared or paid in either year.Pilsner Company uses the cost method to record its investment in Smalley Company.
Required:
Prepare, in general journal form, the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31, 2014.

Accepted Answer

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Question 13

Pulman Company acquired 90% of the stock of Spectrum Company for $6,300,000 on January 1, 2013.On this date, the fair value of the assets and liabilities of Spectrum Company was equal to their book value except for the inventory and equipment accounts.The inventory had a fair value of $2,300,000 and a book value of $1,900,000.The equipment had a fair value of $3,300,000 and a book value of $2,800,000.
The balances in Spectrum Company's capital stock and retained earnings accounts on the date of acquisition were $3,700,000 and $1,900,000, respectively.
Required:
In general journal form, prepare the entries on Spectrum Company's books to record the effect of the pushed down values implied by the acquisition of its stock by Pulman Company assuming that:
A values are allocated on the basis of the fair value of Spectrum Company as a whole imputed from the transaction.
B values are allocated on the basis of the proportional interest acquired by Pulman Company.

Accepted Answer

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Question 14

What are the arguments for and against the alternatives for the handling of bargain acquisitions? Why are such acquisitions unlikely to occur with great frequency?

Accepted Answer

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Question 15

Phillips Company purchased a 90% interest in Standards Corporation for $2,340,000 on January 1, 2013.Standards Corporation had $1,650,000 of common stock and $1,050,000 of retained earnings on that date.
The following values were determined for Standards Corporation on the date of purchase:  
Required:
A.Prepare a computation and allocation schedule for the difference between the implied and book value in the consolidated statements workpaper.
B.Prepare the January 1, 2013, workpaper entries to eliminate the investment account and allocate the difference between implied and book value.

Accepted Answer

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Quiz 5: Allocation and Depreciation of Differences Between Implied and Book Value

In what account is the difference between book value and the value implied by the purchase price recorded on the books of the investor? In what account is the "excess of implied over fair value" recorded?

The parent company's share of the fair value of the net assets of a subsidiary may exceed acquisition cost.How must this excess be treated in the preparation of consolidated financial statements?

How do you determine the amount of "the difference between book value and the value implied by the purchase price" to be allocated to a specific asset of a less than wholly owned subsidiary?

What are the arguments for and against the alternatives for the handling of bargain acquisitions? Why are such acquisitions unlikely to occur with great frequency?