Question

Post Corporation paid $330,000 cash for 75% of the outstanding common stock of Soft Company on January 1, 2020. There was no control premium and the fair value of the noncontrolling interest was $110,000 on January 1, 2020. Differences between book value and fair value of the net identifiable assets of Soft Company on January 1, 2020, were limited to the following:

                                                                      Book value        Fair value         

            Inventories                                          $ 25,000          $ 35,000                       

            Building (net)                                       175,000            173,000                       

Required:

(i) Prepare the working paper elimination entries E and R (in journal entry format) for Post Corporation and subsidiary on January 1, 2020.                                                

(ii) Complete the following working paper:

Working paper for consolidated balance sheet on date of business combination, January 1, 2020                      

	Post Dr (Cr)	Soft Dr (Cr)	Adjustments & Eliminations		Consolidated Dr (Cr)
			Debits	Credits
Cash	20,000	30,000
Inventories	170,000	25,000
Investment in Soft	330,000
Building (net)	230,000	175,000
Accounts payable	(120,000)	(110,000)
Common stock	(380,000)	(25,000)
Add. paid-in capital	(100,000)	(30,000)
Retained earnings	(150,000)	(65,000)
Total	0	0

Answer 1

1.	Working paper elimination entries E and R (in journal entry format) for Post Corporation and subsidiary on January 1, 2020.
	Sl.No.	Name of the Account	Debit	Credit
	1	Inventory Account	5000
		To Fair Value Adjustment Account		5000
		(being adjustment made for the difference)
	2	Fair value adjustment Account	2000
		To Buildings Account		2000
		(being adjustment made for the difference)
	3	Equity	92250
		Good Will Account	237750
		To Investment in Soft		330000
		(being the equity accounts eliminated)
	4	Equity	30750
		To Non Controlling interest		30750
		(being the equity accounts eliminated)

2. Working paper for consolidated balance sheet on date of business combination, January 1,2020

Particulars	Post Dr (cr)	Soft Dr (cr)	Adjustments & Eliminations Dr (cr)	Consolidated Dr (cr)
Cash	20,000	30,000		50,000
Inventories	170,000	25,000	5,000	200,000
Investment in Soft	330,000		(330,000)
Building (net)	230,000	175,000	(2,000)	403,000
Good Will			237,750	237,750
Accounts payable	(120,000)	(110,000)		(230,000)
Common stock	(380,000)	(25,000)	25,000	(380,000)
Add. paid-in capital	(100,000)	(30,000)	30,000	(100,000)
Retained earnings	(150,000)	(65,000)	65,000	(150,000)
Non-Controlling interest			(30,750)	(30,750)
Total	0	0	0	0

Calculation:

Net Assets Value of Soft Company:

Total Assets - 230,000

Fair Value Adjustments - 3,000

(5000-2000)

Total Assets - 233,000

Less: Liabilities - 110,000

Net Assets value - 123,000

Share of Post Corporation = 123,000 * 75% = 92,250

Share of Minority Interest Shareholders = 123,000*25% = 30,750