Use formulae on the spreadsheet. On January 2, 20x4, Puma Co. purchased 70% of S
ID: 2567896 • Letter: U
Question
Use formulae on the spreadsheet. On January 2, 20x4, Puma Co. purchased 70% of Squirrel Co.'s common stock for $270,200. At that da the fair value of the noncontrolling interest was equal $115,800. On that date the Squirrel's net assets had a book value of $350,000. The book values and fair values of Squirrel's assets and liabilities were equal except land that had a fair value $10,000 higher than the book value, the rest of the differential i assigned to goodwill. a) b) c) d) Puma sold inventory costing $48,000 to Squirrel for $80,000 in 2014, of which $20,000 Squirre had in its inventory at the end of 20x4. Squirrel sold all of it to unaffliated customers in 20x5 Squirrel sold inventory costing $120,000 to Puma for $200,000 in 20x4, Puma resold 62.5% of in 2014 and the remainder in 2015. Puma sold goods costing $54,000 to Squirrel for $90,000. Squirrel continues to hold $20,000 of its purchase from Puma on December 31, 20x5, During 2015 Squirrel sold inventory costing $74,000 to Puma for $124,000. Puma held all inventory purchased from Squirrel during 2015 on December 31, 20x5. Assume both companies use straight-ine depreciation and that all depreciable assets have a 10 year life from the date of acquisition. Puma uses the fully adjusted equity method. The 20xS trial balances for Puma Co. and Squirrel Co. are given below. Puma Co. Squirrel Co. Item Cash Accounts Rec. Inventory Credit Debit Credit Debit 55,300 26,000 200,000 30,000 210,000 265,700 190,000 40,000 10,000 35,000 25,000 70,000 110,000 20,000 Equipment(net) Investment in Squirrel Co. Cost of Goods Sold Depreciation Expense Other Expenses Dividends declared Accounts Payable Notes Payable Common Stock Add. Paid in Capital Retained Earnings Sales Income from Sun Co. 200,000 140,000 20,000 10,000 5,000 5,000 25,000 150,000 140,000 428,000 5,000 15,000 100,000 30,000 240,000 210,000 14,000 $1,062,000 $1,062,000 $600,000 S600,000Explanation / Answer
70% stake bought for 270,200
Book value of net assets was 350,000 and as mentioned in question only difference in book value and fair value was 10,000 higher value of land
Hence fair value of the net assets will be 350,000 + 10,000
= 360,000
If equity method investment is followed then,
Fair value of the investment purchased = 360,000* 70%
= 252,000
However we have paid 270,200
In equity method investment, whatever amount paid over the fair value is shown as goodwill in financial statements.
In the present case goodwill amount will be
270,200 - 252,000 = 20,200
Accounting entry will be
Investment account debit 252,000
Goodwill account debit. 20,200
To Cash/Bank 272,000
However while presenting the investment in balance sheet investment will be shown at 270,200 and in inner column we will mention that out of this 20,200 is goodwill.
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