Question

On December 31, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $280,000. On this date, Subsidiary had total owners' equity of $250,000 (common stock $20,000; other paid-in capital, $80,000; and retained earnings, $150,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Inventory is undervalued $5,000. Land is undervalued $20,000. Buildings and equipment have a fair value which exceeds book value by $30,000. Bonds payable are overvalued $5,000. The remaining excess, if any, is due to goodwill.

Required:

a.	Prepare a value analysis schedule for this business combination.
	Check Number – Goodwill $40,000
b.	Prepare the determination and distribution schedule for this business combination
	Check Number – Excess of FV over BV $100,000
c.	Prepare the necessary elimination entries in general journal form.

        ANS:

Answer 1

a) Value Analysis Schedule

	Fair Value	Parent Price	NCI Value
i) Company fair value	$350,000	$280,000	$70,000
ii) Fair value identifiable iet assets	$310,000	$248,000	$62,000
iii) Goodwill	$40,000	$32,000	$8,000

b)	Determination and distribution schedule for this business combination

b)Determination and distribution schedule: Parent Price NCI Value Company Implied Fair Value $_350.000 $_280.000 $_70.000 S 20,000 80,000 150.000 250.000 Fair value of subsidiary Less book value: Common stock Paid-in capital in excess of par Retained earnings Total Equity Interest Acquired Book value Excess of FV over BV Adjust identifiable accounts: Inventory Land Buildings & equipment Discount on bonds payable Goodwill Total $ 250,000 80% $_200,000 S_80.000 $250,000 20% S_50.000 S_20.000 100.000 S 5,000 20,000 30,000 5,000 40.000 100.000

c)

Elimination Entries - EL

Date	Account Titles and Explanation	Debit	Credit
	Common Stock - Sub	16,000
	Paid-in Capital in Excess - Sub	64.000
	Retained Earnings - Sub	120.000
	nvestment in Subsidiary		200,000

Elimination Entries - D

Date	Account Titles and Explanation	Debit	Credit
	Inventory	5,000
	Land	20,000
	Buildings & Equipment	30,000
	Discount on Bonds Payable	5,000
	Goodwill	40,000
	Investment in Sub		80,000
	Retained Earnings-Sub (NCI)		20,000

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