Muscat Company purchased a 90% interest in Dhofar Corporation for O.R. 2,340,000 on January 1, 2013. Dhofar Corporation had O.R. 1,650,000 of common stock and O.R. 1,050,000 of retained earnings on that date.
The following values were determined for Dhofar Corporation on the date of purchase:
Book Value | Fair Value | |
Inventory | O. R 240,000 | O.R 300,000 |
Land | 2,400,000 | 2,700,000 |
Equipment | 1,620,000 | 1,800,000 |
Instructions:
1. Prepare the January 1, 2013, workpaper entries to eliminate the investment account and allocate the difference between implied and book value. …….(7Marks)
2. What would be the balance of Equipment account after two years of acquisition? …….(2 Marks)
1 | Part A | Computation and Allocation of Difference Schedule | |||
Parent Share | Non- Controlling Share | Entire Value | |||
Purchase price and implied value | 2340000 | 260000 | 2600000 | ||
Less: Book value of equity acquired | 2430000 | 270000 | 2700000 | ||
Difference between implied and book value | -90000 | -10000 | -100000 | ||
Inventory | -54000 | -6000 | -60000 | ||
Land | -270000 | -30000 | -300000 | ||
Equipment (net) | -162000 | -18000 | -180000 | ||
Balance (excess of FV over implied value) | -576000 | -64000 | -640000 | ||
Gain | 576000 | ||||
Increase Noncontrolling interest to fair value of assets | 64000 | ||||
Total allocated bargain | 640000 | ||||
Balance | 0 | 0 | 0 | ||
*$2,340,000/.90 | |||||
Journal Entries | |||||
Part B | Date | Account Title | Debit-$ | Credit-$ | |
1 | Capital Stock- Dhofar Corp. | 1650000 | |||
Beginning Retained Earnings-Dhofar Corp. | 1050000 | ||||
Difference between Implied and Book Value | 100000 | ||||
Investment in Dhofar Corp. | 2340000 | ||||
Noncontrolling Interest | 260000 | ||||
2 | Difference between Implied and Book Value | 100000 | |||
Inventory | 60000 | ||||
Current Assets | 300000 | ||||
Equipment (net) | 180000 | ||||
Gain on Acquisition | 576000 | ||||
Noncontrolling interest | 64000 |
Muscat Company purchased a 90% interest in Dhofar Corporation for O.R. 2,340,000 on January 1, 2013. Dhofar Corporation...
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