Question

On 1-1 2019, Dubai Inc. purchased 95 percent of Sub. Inc. for 120,000 cash. The Balance Sheet of each corporation just prior to the acquisition presented below. Additionally, book value and fair value for all of Sub’s assets and liabilities are equal, with the exception of Property, Plant and Equipment, whose fair value is 47,000.

Balance sheet before acquisition

Balance Sheet

		Dubai Inc.	SUB Inc.
	Assets	1/1/2019	1/1/2019
	Current Assets
	Cash	$170,000	$21,000
	Accounts receivable (Net)	60,000	45,000
	Inventory	50,000	45,000
	Total Current Assets	$280,000	$111,000
	Fixed Assets
	Property, Plant, and Equipment (Net of Accumulated Depreciation)	265,000	42,000
	Goodwill
	Total Assets	545,000	153,000
Liabilities
Current Liabilities
Accounts Payable		$70,000	$30,000
Accruals Payable		20,000	15,000
Total Current Liabilities		$90,000	$45,000
Non-Current Liabilities
Bonds Payable		$180,000
Total liabilities		$270,000	$45,000

Shareholders' Equity
Non-Controlling Interest (Share of Subsidiary)	$	$
Common Stock ($5 Par)	100,000	55,000
Paid In Capital	20,000	8,000
Retained Earnings	155,000	45,000
Total Shareholders' Equity	$275,000	$108,000
Total Liabilities and Shareholder's Equity	$545,000	$153,000

Prepare the necessary work paper adjusting entries on the date of purchase.

Answer 1

Answer:

No.	General Journal	Debit	Credit
1	Investment in Sub Inc.	$       120,000
	Cash		$        120,000
	(to record purchase of Sub Inc.)
2	Common stock-Sub Inc.	$          55,000
	Paid-in capital-Sub Inc.	8,000
	Retained earnings-Sub Inc.	45,000
	Property, Plant and Equipment	5,000
	Goodwill	13,316
	Investment in Sub Inc.		$        120,000
	Non-controlling interest in Sub Inc.		6,316
	(to record adjusting entries on the date of purchase)

No.	Working Notes:
1	Fair value of Sub Inc. = $120,000 / 95% =	$       126,316
2	Total shareholder's equity of Sub Inc.	$       108,000
	Increase in PPE (47,000 - 42,000)	5,000
	Fair value of Sub Inc.'s identifiable net assets	113,000
3	Goodwill = ($126,316 - 113,000)	$          13,316
4	Non-controlling interest = $126,316 × 5% =	$            6,316
5	Depreciation expense =($265,000 + 47,000) / 10 =	$          31,200

CONSOLIDATION WORKSHEET ON 12/31/2019
Assets	Dubai Inc.	Sub Inc.	Adjustments		Consolidated Amt
			Debit	Credit
Current Assets:
Cash	$          50,000	$           21,000			$                 71,000
Account receivable (Net)	60,000	45,000			105,000
Inventory	50,000	45,000			95,000
Total Current Assets	160,000	111,000			271,000
Investment in Sub Inc.	120,000			120,000
Fixed Assets:
Property, Plant and Equipment	265,000	42,000	5,000		312,000
Goodwill			13,316		13,316
Total Assets	$       545,000	$        153,000	$          18,316	$            120,000	$              596,316
Liabilities
Current Liabilities:
Account payable	70,000	30,000			100,000
Accruals	20,000	15,000			35,000
Total Current Liabilities	90,000	45,000			135,000
Non-current Liabilities:
Bonds payable	180,000				180,000
Total Liabilities	$       270,000	$          45,000			$              315,000
Shareholder's Equity
Non-controliing interest				6,316	6,316
Common stock	100,000	55,000	55,000		100,000
Paid-in capital	20,000	8,000	8,000		20,000
Retained earnings	155,000	45,000	45,000		155,000
Total Shareholder's Equity	275,000	108,000	108,000	-	281,316
Total Liabilities and Shareholder's Equity	$       545,000	$        153,000	$        108,000	$                6,316	$              596,316