Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date...
Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date of acquisition, Scrub Company reported assets and liabilities with book values of $439,000 and $179,000, respectively, common stock outstanding of $98,000, and retained earnings of $162,000. The book values and fair values of Scrub’s assets and liabilities were identical except for land, which had increased in value by $19,000, and inventories, which had decreased by $6,000.
Required:
A. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $285,000. Record the basic consolidation entry. Record the excess value (differential) reclassification entry
B. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $256,000. Record the basic consolidation entry. Record the excess value (differential) reclassification entry
Homework Answers
ANSWER
(A)
| Particulars | DR | CR |
| Land -scrub | 19,000 | |
| Share capital-Scrub | 98,000 | |
| Retained Earnings-Scrub | 162,000 | |
| Inventories-Scrub | 6,000 | |
| Investment in Scrub(In power books) | 285,000 | |
| Other Income (gain on bargain purchase) | -12,000 | |
| Gain on bargain purchase=Fair valve of Net Assets-Purchase Price | ||
(B)
| Particulars | DR | CR |
| Land -scrub | 19,000 | |
| Share capital-Scrub | 98,000 | |
| Retained Earnings-Scrub | 162,000 | |
| Inventories-Scrub | 6,000 | |
| Investment in Scrub(In power books) | 256,000 | |
| Other Income (gain on bargain purchase) | 17,000 |
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