Question

Venus Corporation purchases 70% of the common stock of Starnes Company for $700,000. At the time of purchase, Starnes has the following balance sheet: Starnes Company Balance Sheet December 31, 2019 90,000 300,000 Assets Cash equivalents Inventory Land Building (net) Equipment (net) Total Assets Liabilities and Equity 110,000 Accounts Payable 200,000 Bonds Payable 80,000 Stockholder's Equity 400,000 Common Stock ($5 par) 210,000 Paid-in Capital in excess of par Retained Earnings 1,000,000 Total Liabilities and Equity 100,000 160,000 350,000 1,000,000 The fair value of the assets are as follows: Fair Value Cash equivalents 110,000 Inventory 220,000 Land 120,000 Building 480,000 Equipment 190,000 730,000 Required: 1. Prepare the value analysis schedule and the determination and distribution of excess schedule for the investment in Starnes Company 2. Prepare the elimination entries that would be made on a consolidation worksheet prepared on the date of purchase.

Answer 1

1	Value Analysis Schedule
		Company implied Fair value	Parent Price 70%	NCI Value 30%
	Company Fair Value	$1,000,000	$700,000	$300,000
	Fair Value of Net Assets Excluding Goodwill (Working Note-1)	$730,000	$511,000	$219,000
	Goodwill	$270,000	$189,000	$81,000
	Working 1:
	Fair Value of Net Assets:
	Cash Equivalent	$110,000
	Inventory	$220,000
	Land	$120,000
	Building (Net)	$480,000
	Equipment (Net)	$190,000
	Total Assets	$1,120,000
	Less: Accouts Payable	($90,000)
	Less: Bonds Payable	($300,000)
	Net Assets	$730,000
	Determination and distribution of Excess Schedule
		Company implied Fair value	Parent Price 70%	NCI Value 30%
	Fair value of subsidiary	$1,000,000	$700,000	$300,000
	Less: Book value of Interest acquired
	Common Stock	$100,000	$70,000	$30,000
	Paid in capital excess of par	$160,000	$112,000	$48,000
	Retained Earnings	$350,000	$245,000	$105,000
	Total Equity	$610,000	$427,000	$183,000
	Interest Acquired	100%	70%	30%
	Book Value	$610,000	$427,000	$183,000
	Excess of Fair Value over Book Value	$390,000	$273,000	$117,000
	Adjustment of idetifiable accounts
	Account	Adjustment	Worksheet Key
	Inventory	$20,000	Debit
	Land	$40,000	Debit
	Building	$80,000	Debit
	Equipment	$20,000	Credit
	Goodwill	$270,000	Debit
2	Elimination Entries as below:
	Account Titles and Explanation	Debit	Credit
	Common Stock	$100,000
	Paid in capital in excess of par	$160,000
	Retained Earnings	$350,000
	Excess of Fair Value over Book Value	$390,000
	Investment in shares of Starness		$700,000
	Non controlling Interest in equity		$300,000
	Account Titles and Explanation	Debit	Credit
	Inventory	$20,000
	Land	$40,000
	Building	$80,000
	Goodwill	$270,000
	Equipment		$20,000
	Excess of Fair Value over Book Value		$390,000