Question

can you show me how to caculate the 400,000 (fv acquired) in the less part of the calculation?

R P-19 (LO 3a Chapman Co. obtains 100% of Abernethy's stock on Jan 1, 2017 for $490,000 cash & uses the equity method. During 2017. Abernethy reported income of $80,000 and paid dividends of $10,000. In 2018. it reported $110,000 of income and paid $30,000 in dividends. At acquisition date (lan. 1, 2017), Abernethy has the following balances: Exess Fuover ou DR 40,000 ICR (20,000) DR LYD Debit Credit Accounts Payable L $ 50,000 Accounts Receivable $ 40,000 Additional Paid-in Capital 50,000 Buildings, net (4-yr life 120,000 - Cash & ST Investments 60,000 Common Stock 250,000 Equipment, net (5-yr life) Inventory 90,000 Land 80,000 LT Liabilities (mature 12/31/20) 150,000 Retained Earnings, 1/1/17 100,000 Supplies 10,000 Totals $ 600.000 $600.000 As of Jan. 1, 2017, fair values of Abernethy's assets were: land $90,000, buildings $160,000,& equipment $180,000. Prepare consol wkst entries for Dec 31, 2017 & 2018. Goodwill or Goin on purchase? Fu Trunsferred (lent) 490 Less to acquired: CHA USC Met AS - Wetters 42 BV of het assets weterek - se Excess Fverer BV Amort A lly Nin Hines Land: 10,000 vo the texe ne se Bus: 40 yrs Equit: (20,000) -exes (7.000) Nxx89 160.000 Goodwill) 6,000 tro dec NE

Answer 1

Actually the solution takes the book value of net asset acquired first and then makes for fair value adjustment .

	Book value
Asset
Accounts receivable	40000
Building	120000
Cash and short term investment	60000
Equipment	200000
Inventory	90000
Land	80000
supplies	10000
Total asset	600000`
less:Liabilities acquired
Accounts payable	50000
Long term liabilities	150000
Total liabilities	(200000)
Book value of net asset acquired [600000-200000]	400000
Fair value adjustment /Excess of fair value over book value
Over-valuation of land [90000-80000]	10000
Over-valuation of building	40000
Under-valuation of equipment	-20000
Total	30000
Fair value of asset acquired [400000+30000]	430000

Goodwill = 490000-430000=60000