Eliminating Entries with Differential
On June 10, 20X8, Tower Corporation acquired 100 percent of Brown Company’s common stock. Summarized balance sheet data for the two companies immediately after the stock acquisition are as follows:
| Tower Corp. | Brown Company | |
Item |
| Book Value | Fair Value |
Cash | $ 15,000 | $ 5,000 | $ 5,000 |
Accounts Receivable | 30,000 | 10,000 | 10,000 |
Inventory | 80,000 | 20,000 | 25,000 |
Buildings and Equipment (net) | 120,000 | 50,000 | 70,000 |
Investment in Brown Stock | 100,000 |
|
|
Total | $345,000 | $85,000 | $110,000 |
Accounts Payable | $ 25,000 | $ 3,000 | $ 3,000 |
Bonds Payable | 150,000 | 25,000 | 25,000 |
Common Stock | 55,000 | 20,000 |
|
Retained Earnings | 115,000 | 37,000 |
|
Total | $345,000 | $85,000 | $ 28,000 |
Required
a.Give the eliminating entries required to prepare a consolidated balance sheet immediately after the acquisition of Brown Company shares.
b.Explain how eliminating entries differ from other types of journal entries recorded in the normal course of business.
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