Question

On January 1, Year 1, Parent bought a 55% interest in Sub. Parent paid for the transaction with $3 million cash and 500,000 shares of Parent common stock (par value $1 per share; fair value $14.90 per share). At the time of the acquisition, Sub's book value was $16,970,000. On the date of purchase, fair values of Sub's assets differed from book values as follows: Land Book Value $1,700,000 2,700,000 3,700,000 Fair Value $2,550,000 3,400,000 3,300,000 Buildings (7-yr life) Equipment (5-yr life) A. Prepare an Analysis of Purchase Price as of the date of Purchase assuming the Parent did not pay a control premium: B. Prepare the Year 1 journal entries that were made on the Parent's books for its Investment in Sub.

Answer 1

(a) Calculation of Purchase consideration-

Cash	$3,000,000
Shares (5,00,000*14.90)	$74,50,000
Total Purchase Consideration	$1,04, 50,000

(B) Journal Entries-

1. Business Combination a/c Dr	$1,04,50,000
To vendor a/c		$1,04,50,000
(Being Business combination done)
2. Land & Building a/c Dr	25,50,000
Building a/c Dr	34,00,000
Equipment a/c Dr	33,00,000
Goodwill a/c Dr (bal. figure)	71,00,000
To account payble		49,00,000
To Note Payble		10,00,000
To business combination		1,04,50,000
3. Vendor a/c Dr	1,04,50,000
To cash		30,00,000
To Equity share Capital		5,00,000
To Securities premium		69,50,000
(Being purchase consideration paid)