Question

3. On December 31, 2019, Purple Company purchased 80% of the common stock of Sage Company for $1,300,000. On this date, Sage had total owners' equity of $650,000 (common stock $100,000; other paid-in capital, $250,000; and retained earnings, $300,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Assets and liabilities with differences in book and fair values are provided in the following table:

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​	Book	Fair
​	Value	Value
Current assets	$500,000	$700,000
Accounts receivable	200,000	150,000
Inventory	800,000	850,000
Land	100,000	450,000
Buildings and equipment, net	700,000	800,000
Current liabilities	800,000	850,000
Bonds payable	850,000	900,000

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Remaining excess, if any, is due to goodwill.

1. Prepare the elimination journal entries.

Answer 1

Purchase Price Paid	$         1,300,000.00
% Holding in Sage	80%
Implied Value of Sage =$1.3M/80%=	$         1,625,000.00
NCI at Implied Value =	325,000

	Allocation of Difference	80% Parent	20% NCI	Total
m	Purchase Consideration and Total Implied value	1,300,000	325,000	1,625,000
	Less Book Value of Equity Acquired
	Common Stock	80,000	20,000	100,000
	Other Paid in Capital	200,000	50,000	250,000
	Retained Earning	240,000	60,000	300,000
n	Total Book Value	520,000	130,000	650,000
o	Difference between Impied and Book Value=m-n	780,000	195,000	975,000
	Allocation of Difference
	Current Assets	160,000	40,000	200,000
	Accounts Receivable	(40,000)	(10,000)	(50,000)
	Inventory	40,000	10,000	50,000
	Building & Equipment net	80,000	20,000	100,000
	Land	280,000	70,000	350,000
	Current Laib	40,000	10,000	50,000
	Bond Payable	40,000	10,000	50,000
	Good Will Recognized	180,000	45,000	225,000
	Total Difference between Implied and Book Value=m-n	780,000	195,000	975,000

Ans	Elimination Entry
	Account Title	Dr $	Cr $
	Common Stock	100,000
	Other paid in Capital	250,000
	Retained Earning (sage)	300,000
	Investment in Sage		1,300,000
	NCI		325,000
	Difference between Impied and Book Value	975,000