Question

Facts: Assume that on January 1, Parent Company ("Parent Co") acquires 100% of the common stock of Subsidiary Company ("Sub Co") for $800,000. On the acquisition date, Sub Co reports a book value of Stockholders' Equity of $320,000. Parent Co is willing to pay the purchase price because the subsidiary owns property, plant and equipment that are worth $150,000 more than the amount at which they are reported on Sub Co's books. In addition, Sub Co owns a customer list that has a fair value equal to $50,000. Both of these identifiable assets are depreciated or amortized over a 10 year period with no salvage value. Any remaining excess purchase price is attributed to corporate synergies that Parent Co expects to realize following the combination of the two companies. Parent Co and Sub Co's financial statements at the end of the first year following the acquisition are detailed in the Excel file "Case 1 - Advanced accounting topics." Required: Using the Excel file "Case 1 - Advanced accounting topics," prepare the consolidated financial statements at the end of the first year following the acquisition.

Answer 1

	Computation of goodwill-
	Purchase price		800,000
	Less:
	Equity		(320,000)
	Fair value of customer list		(50,000)
	Fair value gain on PPE		(150,000)
	Goodwill		280,000
Journal Entries in Consolidation
Date	General Ledger Name	Debit	Credit
	Property plant and Equipment A/c---Dr	150,000
	Fair value of customer list A/c---Dr	50,000
	To Retained earnings A/c		200,000
	(Being assets fair valued)
	Equity A/c---Dr	320,000
	Retained earnings A/c--- Dr.	200,000
	Goodwill A/c---Dr	280,000
	To Investment A/c		800,000
	(Being consol entry recorded)