Question

please show your work

Name: Score: P Corp. acquired 80 percent of corps common quired 80 percent of S Corp's common shares on January 1, 2020 for $620,000 cash S Corp. will continue as a separate legal entity. Further examination of S Corp's balance sheet below provides book and fair values S Corporation's Balance Sheet (January 1, 2020) Cash and Receivables Inventories Land Buildings and Equipment (net) Intangibles (net) Totals Book Value $120,000 470,000 100,000 200,000 250,000 $ 1,140,000 Fair Value Difference $ 120,000 $ - 470,000 $ 125,000 $ 25,000 200,000 $ 450,000 $ 200,000 $ 1,365,000 $ 225,000 Current Liabilities Bonds Payable (net of discount) Totals 90,000 500,000 590,000 $ 90,000 500,000 590,000 Common Stock-S Contributed Capital-S Retained Earnings-S Totals 300,000 240,000 10,000 550,000 $ Instructions: On the paper provided, using the above data: 1. Calculate the implied value of S Corp. 2. Calculate the allocation of difference between implied and book value schedule. See p. 95 of text. Show if any goodwill resulted. 3. Record the journal entry to record P's acquisition of S Corp on January 1. 4. Prepare worksheet entries 1 and 2 (see p. 96 of text).

there is no additional information. peg 95 and 96 is a silmilar problem.

Answer 1

1	Calculation of implied value of S Corp.
	Implied Value = Purchase Price/percentage of holding
	Purchase Price = $620,000
	Percentage of holding = 80%
	Implied value = $620,000/80% = $775,000
	The impled value of S Corp. is $775,000
2	Calculate the allocation of difference between impled and book value schedule. Show if any goodwill resulted.
	Implied Value of S Corp. = $775,000
	Book Value = Total Assets - Liabilities
	Total Assets = $1,140,000
	Liabilities = $590,000
	Book Value = $1,140,000 - $590,000
	Book Value = $550,000
	In the present case, implied value is more than the book value, therefore the difference is to be adjusted to Goodwill Account.
	Good Will = $775,000-$550,000
	Good Will = $225,000

3	Journal Entry to record P's Acquisition of S Corp on Jan 1.
	Date	Name of the Account	Debit	Credit
	Jan 01,2020	Investment in S Corp., A/c	$620,000
		To Bank Account		$620,000
		(To record investment in S Corp.)

4	prepare Worksheet Entries 1 & 2
	Date	Name of the Account	Debit	Credit
	Dec 31,2020	Common Stock S	$300,000
		contributed Capital S	$240,000
		Retained Earnings S	$10,000
		Goodwill Account	$225,000
		To Investment in S Corp A/c		$620,000
		To Non Controlling interest		$155,000
		(WorkSheet Entry)
	Note: 20% share i.e., Non Controlling Interest should be separately shown in the balance sheet as a separate line item.
	Total Implied Value = $775,000
	80% Purchase Price = $620,000
	20% Share = $155,000