Question

Price Corporation acquired 100 percent ownership of Saver Company on January 1, 20X8, for $122,400. At that date, the fair value of Saver's buildings and equipment was $16,000 more than the book value. Accumulated depreciation on this date was $19,000. Buildings and equipment are depreciated on a 10-year basis. Although goodwill is not amortized, Price's management concluded at December 31, 20X8, that goodwill involved in its acquisition of Saver shares had been impaired and the correct carrying value was $2,500. No additional impairment occurred in 20X9. Trial balance data for Price and Saver on December 31, 20X9, are as follows: Saver Company Debit Credit $ 39,000 23,000 33,000 34,000 168,000 Item Cash Accounts Receivable Inventory Land Buildings & Equipment Investment in Saver Company Cost of Goods Sold Wage Expense Depreciation Expense Interest Expense Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Wages Payable Notes Payable Common Stock Retained Earnings Sales Income from Saver Company Price Corporation Debit Credit 65,500 92,000 104,000 55,000 364,000 136,900 136,000 35,000 25,000 12,000 23,000 33,000 $ 158,000 46,000 10,000 140,000 192,000 190,000 295,000 50,400 $1,081,400 $1,081,400 107,000 20,000 9,000 4,000 16,000 36,400 $ 37,000 11,000 4,000 123,400 59,000 47,000 208,000 $ 489,400 $489,400

Answer 1

Part A

No.	Account titles and explanation	Debit	Credit
A.	Basic consolidation entry
	Common stock	59000
	Retained earnings	47000
	Income from Saver Co. (208000-107000-20000-9000-4000-16000)	52000
	Dividends declared		36400
	Investment in Saver Co. (balancing figure)		121600
B.	Amortized Excess Value Reclassification Entry
	Depreciation Expense (16000/10)	1600
	Goodwill Impairment Loss	13500
	Income from Saver Co.		15100
C.	Excess Value (Differential) Reclassification Entry
	Buildings & Equipment	16000
	Goodwill	2900
	Accumulated Depreciation		1600
	Investment in Saver Co.		17300
D.	Optional Accumulated Depreciation Consolidation Entry
	Accumulated Depreciation	19000
	Building & Equipment		19000

Net income = 52000

Beginning retained earning = 47000+36400-52000 = 31400

Differential = 122400-(59000+31400) = 32000

Differential allocated to building rent = 16000

Differential allocated to goodwill = 16000

Goodwill Impairment Loss = 16000-2500 = 13500