Eliminating Entries with Differential
On June 10, 20X8, Game Corporation acquired 60 percent of Amber Company’s common stock. The fair value of the noncontrolling interest was $32,800 on that date. Summarized balance sheet data for the two companies immediately after the stock purchase are as follows:
| Game Corp. | Amber Company | |
Item | Book Value | Book Value | Fair Value |
Cash | $ 25,800 | $ 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 Amber Stock | 49,200 |
|
|
Total | $305,000 | $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 | 75,000 | 37,000 |
|
Total | $305,000 | $85,000 | $ 28,000 |
Required
a. Give the eliminating entries required to prepare a consolidated balance sheet immediately after the purchase of Amber 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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