4. Roof Corporation acquired 80 percent of the stock of Gable Company by issuing

Question

4. Roof Corporation acquired 80 percent of the stock of Gable Company by issuing shares of its common stock with a fair value of S192,000. At that time, the fair value of the non-controlling interest was estimated to be $48,000 and the fair values of Gable's identifiable assets and liabilities were $310,000 and $95,000, respectively. Gable's assets and liabilities had book values of $220,000 and $95,000, respectively. Required Compute the following amounts to be reported immediately after the combination a. Investment in Gable reported by Roof. b. Increase in identifiable assets of the combined entity. c. Increase in total liabilities of the combined entity. e. Noncontrolling interest reported in the consolidated balance sheet.

Explanation / Answer

Solution a:

Investment in Gable reported by Roof = Fair value of common stock issued = $192,000

Solution b:

Fair value of net assets of Gable = $192,000 / 80% = $240,000

Fair value of liabilties of Gable = $95,000

Fair value of assets = Net Assets + Fair value of liabilities = $240,000 + $95,000 = $335,000

Therefore increase in net identifiable assets of the combined entity = $335,000

Solution c:

Increase in total liabilities of the combined entity = $95,000

Solution d:

Goodwill for the combined entity = Total fair value of assets - Fair value of identifiable assets

= $335,000 - $310,000 = $25,000

Solution e:

Non controlling interest reported in consolidated balance sheet = Fair value of net assets of gable * % holding by non controlling shareholders

= $240,000 * 20% = $48,000

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