Question

Plummer corporation acquired 90 percent of Softek Technologies' voting stock by issuing 200,000 shares of $1 par common stock with a fair value of $100,000,000. In addition, Plummer paid $2,000,000 in cash to the consultants and accountants who advised in the acquisition. Softek's shareholders' equity at eh date of the acquisition is as follows:

Common Stock	$400,000
Additional paid-in capital	$20,000,000
Retained deficit	-$10,000,000
Accumulated other comprehensive loss	-$1,000,000
Treasury stock	-$500,000
Total	$8,900,000

Softek's assets and liabilities were carried at fair value except as noted below:

	Book Value	Fair Value
Plant assets, net	$12,000,000	$6,000,000
Trademarks	$-	$2,000,000
Customer lists	$-	$3,000,000

The fair value of the noncontrolling interest is estimated to be $9,000,000 at the date of acquisition.

Required:

Prepare the acquisition entry on Plummer's books and the working paper consolidation eliminating entries at the date of acquisition, following US GAAP.

Answer 1

Plummer’s acquisition entry:

Entry	Account titles and explanation	Debit	Credit
	Investment in Softek	100,000,000
	Merger expenses	2,000,000
	Cash		2,000,000
	Common stock, par value		200,000
	Additional paid-in capital (100000000-200000)		99,800,000

Consolidation eliminating entries:

Entry	Account titles and explanation	Debit	Credit
Entry E	Common stock	400,000
	Additional paid-in capital	20,000,000
	Retained earnings		10,000,000
	Accumulated OCI		1,000,000
	Treasury stock		500,000
	Investment in Softek (8900000*90%)		8010000
	Noncontrolling interest in Softek		890000
Entry R	Trademarks	2,000,000
	Customer lists	3,000,000
	Goodwill	101100000
	Plant assets, net (6000000-12000000)		6,000,000
	Investment in Softek		91990000
	Noncontrolling interest in Softek (balancing figure)		8110000

Goodwill = (100,000,000+9,000,000)-(8900000-6,000,000+2,000,000+3,000,000) = 109,000,000-7900000 = 101100000

Investment in Softek =(90%*(2000000+3000000-6000000))+(100000000-(90%*101100000)) = 91990000

Dear Student,

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