Question

Consolidation at Date Acquisition, Ownership <100%, FMV>BV. Assume that a parent company acquires a 70% interest in a subsidiary for a purchase price of $1,078,000. The excess of total fair value of controlling and noncontrolling interests over book value is assigned to; a building (PPE net) that is worth $100,000 more than book value, an unrecorded patent valued at $200,000 and goodwill valued at $300,000. Goodwill is assigned proportionately to the controlling and noncontrolling interests. Submission Requirements: • Prepare the consolidated balance sheet at the date of acquisition by placing the appropriate entries in their respective debit/credit column cells. • Indicate, in the blank column cell to the left of the debit and credit column cells if the entry is an [E] or [A] entry. • Use Excel formulas to derive the Consolidated column amounts and totals.

Answer 1

Consideration paid to acquired 70% interest is $1,078,000, which is $300,000 (goodwill) more than the book value.

Therefore, book value of net assets acquired is, 1,078,000-300,000 = $778,000

Book values are taken into consideration while consolidating the balance sheets. Fair values are calculated only for the purpose of determining the consideration to be paid at the time of acquisition, which is recorded in the books of parent as investment. That is why patent is not considered in above journals as it was never recorded in the books of subsidiary. Net assets (total assets - total liabilities) actually means the total equity, therefore the equity value of the subsidiary acquired by parent will be eliminated with investment value in the books of parent. 30% of the total goodwill assigned to non controlling interest

Balance sheet extract will be like this based on above journals

Assets:	Parent	Subsidiay	Elimination	Consolidation adjustment	Balnce Sheet	Notes
Net Assets	-	1,111,429	-	-	1,111,429	Total net assets is calculated as, 778000/0.7 as $778,000 is 70% of net assets
Investment	1,078,000			(1,078,000)	-	Invest is offset with subsidiary's equity value of acquired by parent
Goodwill				210,000	210,000	Parent's proportion of goodwill is 70%
Liabilities and Equity:
Payables	1,078,000				1,078,000	Paybles is assumend here to balance the balance sheet of Parent and cosolidated balance sheet. It acan be skipped
Share Capital	-	1,111,429	(1,111,429)		-	share captial of subsidiary is always fully knocked off in conolidated balance sheet
Non-Controlling interest				243,429	243,429	Included 30% of $1,111,429 and a 30% share ($90,000 debit) of goodwill