Question

3. Green Company purchased 100% of Yellow Company on January 1, 2019 for $1,200,000 in cash. On the day of the purchase, Yellow had the following net assets: Book Value Fair Value Life 5 years Cash, receivables Equipment Land Building (net) $100,000 300,000 100,000 400,000 $100,000 350,000 150,000 380,000 10 years Payables Net Assets $200,000 $700,000 $190,000 $790,000 Green uses the acquisition method, as required. a. Prepare a schedule showing how to allocate the difference in fair value given up by Green and the book value of what is received from Yellow. Your schedule should show annual amortization

Answer 1

Part A

A schedule showing how to allocate the difference in fair value given by Green and the book value of Yellow as under

Net Assets	Book Value ($)	Fair Value ($)	Increase in Fair value ($)
Cash, Receivables	100,000	10,0000	0
Equipment	300,000	350,000	50,000
Land	100,000	150,000	50,000
Building (Net)	400,000	380,000	-20,000
Payables	-200,000	-190,000	10,000
Net			90,000

Below is the allocation schedule indicating Purchase consideration is allocated between assets and Goodwill

Particulars		$
Purchase Consideration	A	1,200,000
Book Value of Net Assets	B	700,000
Total Differential	C = A-B	500,000
Fair Value Adjustment	D	90000
Goodwill	E = C - D	410,000

Accounting for Goodwill, (in purchase company)

Journal Entry	Debit ($)	Credit ($)
Cash, Receivables A/c ..Dr	100,000
Equipment A/c…….........Dr	350,000
Land A/c ......................Dr	150.000
Building (Net) /c….........Dr	380.000
Goodwill A/c…......      .Dr	410,000
To Liabilities		190,000
To Cash		1,200,000

Part B

Consolidation journal entry being assuming a consolidation occurs leaving Yellow as a legal entity.

	Debit ($)	Credit ($)
Investment in Yellow…..Dr	1,200,000
To Cash		1,200,000
Goodwill A/c…...............Dr	410,000
Equipment A/c…….........Dr	50,000
Land A/c …......................Dr	50,000
Shares (common Stock) Dr	700,000
Payables A/c….................Dr	10,000
To Building A/c		20,000
To Investment in Yellow		1,20,0000

Part C

Business Purchase A/c......Dr $ 1,200,000

To LIquidator of Yellow $ 1,200,000

Cash, Receivables A/c ..Dr	100,000
Equipment A/c…….........Dr	350,000
Land A/c ......................Dr	150.000
Building (Net) /c….........Dr	380.000
Goodwill A/c…......      .Dr	410,000
To Liabilities		190,000
To Business Purchase		1,200,000

Liquidator of yellow A/c.....Dr 1,200,0000

To Shares 1,200,0000