Velway Corp. acquired Joker Inc. on January 1, 2009. The parent paid more than t

Question

Velway Corp. acquired Joker Inc. on January 1, 2009. The parent paid more than the fair value

of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000

and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair

value of $470,000. Joker decided to use push-down accounting. Immediately after the

acquisition, what Equipment amount would appear on Joker's separate balance sheet and on

Velway's consolidated balance sheet, respectively?

Explanation / Answer

Hi,

Please find the answer as follows:

Joker would report the fair value of $470000 as equipment value in its seperate balance sheet.

Velway would report a total of $970000 ($500000 (Book Value of Equipment) + 470000 (Fair Value of Joker's Equipment) as the equipment value in its consolidated balance sheet.

Answer is $470000 and $970000.

Notes:

Under push down method of accounting, the subsidiary (Joker) is required to update the book value of ite assets and liabilities to the fair value. Hence, it would record equipment at $470000. Similarly, the parent company (Velway) would include the fair value of Joker since it has adopted the push down method of accounting while reporting its own equipment at the book value.

Thanks.

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