Question

On January 1, 2013, Point Corporation acquired an 80% interest in Sharp Company for $1,997,000. At that time Sharp Company had common stock of $1,516,000 and retained earnings of $702,000. The book values of Sharp Company’s assets and liabilities were equal to their fair values except for land and bonds payable. The land had a fair value of $99,000 and a book value of $81,000. The outstanding bonds were issued at par value on January 1, 2008, pay 9% annually, and mature on January 1, 2018. The bond principal is $506,000 and the current yield rate on similar bonds is 7%.

Prepare a Computation and Allocation Schedule for the difference between book value and the value implied by the purchase price in the consolidated statements workpaper on the acquisition date.

Exercise 5-9 On January 1, 2013, Point Corporation acquired an 80% interest in Sharp Company for $1,997,000. At that time Sharp Company had common stock of $1,516,000 and retained earnings of $702,000. The book values of Sharp Company's assets and liabilities were equal to their fair values except for land and bonds payable. The land had a fair value of $99,000 and a book value of $81,000. The outstanding bonds were issued at par value on January 1, 2008, pay 9% annually, and mature on January 1, 2018. The bond principal is $506,000 and the current yield rate on similar bonds is 7%. (a) Prepare a Computation and Allocation Schedule for the difference between book value and the value implied by the purchase price in the consolidated statements workpaper on the acquisition date. (Round present value factor calculations to 5 decimal places, e.g. 1.25136 and final answers to 0 decimal places, e.g. 5,125.) Non- Controlling Share Entire Value Parent Share Purchase Price and Implied Value 1997000 499250 2496250 Less Book Value of Equity Acquired Difference between Implied and Book Value Land Premium on Bonds Payable Balance Goodwill Balance

Answer 1

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	Parent	Non-	Entire
	Share	Controlling share	Value
Purchase price and implied value	$                                                                                                 1,997,000	$                         499,250	$     2,496,250
Less: Book value of equity acquired	$                                                                                                 1,774,400	$                         443,600	$     2,218,000
Difference between implied and book value	$                                                                                                     222,600	$                           55,650	$        278,250
Land ($99,000 – $ 81,000)	$                                                                                                     (14,400)	$                           (3,600)	$        (18,000)
Premium on Bonds Payable	$                                                                                                       33,197	$                             8,299	$           41,496
Balance	$                                                                                                     241,397	$                           60,349	$        301,746
Goodwill	$                                                                                                  (241,397)	$                         (60,349)	$      (301,746)
Balance	$                                                                                                                -	$                                    -	$                    -
Present Value on 1/1/2013 of 10% Bonds Payable
Discounted at 7% over 5 periods
Principal	($506,000 × 0.71299)	$                         360,773
Interest ($506,000*9%)	($45,540 × 4.10020)	$                         186,723
Fair value of bond		$                         547,496
Face value of bond		$                         506,000
Bond premium		$                           41,496