Question

1. P Inc. acquired 100% of S Inc.’s outstanding common stock for $ 1,500,000 cash. Divide the cost into its major elements and prepare the consolidation entices as of the acquisition date. Prepare basic elimination entry and excess value reclassification entry from the following information

	Book Value	Current Value
Cash	50,000	50,000
Account Receivable	150,000	150,000
Notes Receivable	120,000	60,000
Land	410,000	540,000
Building & Equipment	500,000	610,000
Patent	40,000	130,000
Goodwill	100,000	--
Total Assets	1370,000	1540,000
Payables & Accruals	120,000	120,000
Long Term Debt	720,000	650,000
Total Liabilities	840,000	770,000
Common Stock	130,000
Additional Paid In Capital	470,000
Retained Earnings	380,000
Total Equity	980,000

Answer 1

Requirement 1:  Prepare the following basic elimination entry

Date	Account Title and Explanation	Debit	Credit
	Common Stock	$130,000
	Additional Paid In Capital	$470,000
	Retained Earnings	$380,000
	Investment in Subsidiary		$980,000
	Consolidation entry to eliminate stockholders' equity accounts

Requirement 2: Prepare the following excess value reclassification entry

Date	Account Title and Explanation	Debit	Credit
	Land	$130,000
	Building & Equipment	$110,000
	Patent	$90,000
	Long Term Debt	$70,000
	Goodwill - New	$280,000
	Notes Receivable		$60,000
	Goodwill - Old		$100,000
	Investment in Subsidiary		$520,000
	Consolidation entry for excess value reclassification

Notes: Compute difference in book values and fair values as follows

Account Title	Book Value	Current Value	Difference
	A	B	(B − A)
Cash	$50,000	$50,000	$0
Account Receivable	$150,000	$150,000	$0
Notes Receivable	$120,000	$60,000	($60,000)
Land	$410,000	$540,000	$130,000
Building & Equipment	$500,000	$610,000	$110,000
Patent	$40,000	$130,000	$90,000
Goodwill	$100,000		($100,000)
Total Assets	1,370,000	1,540,000	170,000
Payables & Accruals	$120,000	$120,000	$0
Long Term Debt	$720,000	$650,000	($70,000)
Total Liabilities	840,000	770,000	($70,000)
Common Stock	$130,000
Additional Paid In Capital	$470,000
Retained Earnings	$380,000
Total Equity	980,000

Compute new goodwill as follows

Particulars	Amount	Amount
Cost of investment		$1,500,000
Deduct: Book value elements
Common Stock	$130,000
Additional Paid In Capital	$470,000
Retained Earnings	$380,000	$980,000
Total excess cost of investment		$520,000
Deduct / (Add):
Notes Receivable	($60,000)
Land	$130,000
Building & Equipment	$110,000
Patent	$90,000
Goodwill - Old	($100,000)
Long Term Debt	$70,000	$240,000
Goodwill - New		$280,000