Question

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Pushdown Accounting Assume a parent company acquires its subsidiary by paying $1,200,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Subsidiary Parent Assets Cash & receivables Inventory Property & equipment, net Equity investment Licenses $ 800.000 $ 100.000 600,000 200.000 2.300.000 775.000 1.200.000 25,000 $ 4.900.000 $1,100,000 Liabilities and stockholders' equity Current liabilities Other liabilities Note payable Common stock Аріс Retained earnings $ 400.000 $ 150.000 300.000 350,000 1.670,000 100,000 1,430.000 200.000 1.100.000 300.000 $ 4.900,000 $ 1.100.000 a. Compute the amount of goodwill implicit in the acquisition of the subsidiary, $ 200,000

Answer 1

Ans-(a)

Goodwill calculations

FV DETAILS Cash and Receivable Inventory PPE net Licences Total Assets taken over Current Liabilities Note Payable Total Liabilities taken over 100000 200000 925000 275000 1500000 150000 350000 500000 1000000 Net Assets Taken Over Consideration paid Goodwill 1200000 200000

Ans-(b)

Pushdown Journal by Subsidiary

DETAILS PPE net Licences Goodwill Retained Earnings APIC DEBIT CREDIT 150000 250000 200000 300000 900000

Ans-(c )

DETAILS Common Stock APIC Goodwill Equity Investments DEBIT CREDIT 100000 900000 200000 1200000