Question

part 1

QUESTION 33 On January 1, Year 1, Giant bought 80% of the shares of Son for $20 million. At the time, the fair value of the 10% noncontrolling interest was $4 million. The equity of Son on the date of acquisition was $16 million. Its common stock $1 million and retained earnings $15 million. All assets and liabilities had fair value equal to book value, except Son owned a building with a fair value $ of $30 million and a fair value of $25 million. It has 10 years of remaining life and no salvage value. During Year 1, Son reported revenues of $5 million and expenses of $3 million. It declared dividends of $300,000. Giant had net income from its own operations (ignoring its interest in Son) of $50 million As of the date of acquisition, what corysolidation entry or entries are needed? Show your work. (6 points)

part 2

Answer 1

solution:

ENTRY ON DATE OF AQUISTION:-

Debit[$ Credit($

Particulars

Investment in son a/c Dr 20000000

To Bank a/c 20000000

[Being Investment made in Son

Company]

ENTRY ON THE YEAR END:
Debit($ Credit($ Particulars

Bank a/c Dr 300000

To Dividend from Son Co a/c 300000

[Being Dividend received from Son

Company]

Dividend from Son Co a/c Dr 300000

To Investment in Son a/c 300000

[Being pre acquisition dividend

reducing the value of the investment]

Goodwill a/c Dr 2900000

To Profit &Loss a/c 2900000

(Being Goodwill created from

working note given below)

WORKING NOTE:

Pariculars DOA DOC Retained Earnings

in(millions) in(millions)

Equity Shares 12.8 12.8 -

Retained Earning 3.2 3.2 -

Profits 17 17 Revaluation of Building 5 5 -

Depreciation on the aove - -0.5 -0.5

Net assets 21 22.2 12 Percentage 80% 20% 80%

Share of Net assets 16.8 4.44 0.96 Rectified value of 19.7

investment

Goodwill 2.9

Note:

DOA- Date of Acquistion.

DOC- Date of Consolidaton