. On January 1, 2016, Caleb Corp. paid $1,020,000 to acquire all Kelton Co using
ID: 2579032 • Letter: #
Question
. On January 1, 2016, Caleb Corp. paid $1,020,000 to acquire all Kelton Co using cash for the combination.
Kelton maintained separate incorporation.
Caleb used the equity method to account for the investment. The following information is available for Kelton’s assets, liabilities, and stockholders' equity accounts on January 1, 2016:
Book Value Fair Value
current assets 120,000 120,000
land 72,000 192,000
Building(twenty year life) 240,000 268,000
Equipment(ten year life) 540,000 516,000
current liabilities 24,000 24,000
long-term liabilities 120,000 120,000
common stock 228,000
additional paid-in capital 384,000
retained earnings 216,000
Kelton earned net income for 2016 of $126,000 and paid dividends of $48,000 during the year. Instruction:
Prepare the journal entries for the purchased of investment.
Prepare the analysis for the business combination and the journal entries for this moment in January 1, 2016.
What is the amount of goodwill at January 1, 2016? _______________
What is the balance of Cash in the Consolidate Balance Sheet at Jan 1, 2016?
What is the amount of the amortization allocation for December 31, 2016? _______________________
What is the amount of controlling interest and noncontrolling interest for January 1, 2016? __________________________________________
What is the Balance of Investment in Kelton account at the end of the 2016?
What is the Balance of the Common Stock and Retained Earnings in the Balance Sheet Consolidated at December 31, 2016?
Explanation / Answer
1. If Kelton is a separate incorporation then the investment will be treated as equity investment.
Journal entry for Investment
Date
Particulars
Dr. Amount
Cr. Amount
01/01/2016
Investment in Kelton
TO Cash
1,020,000
1,020,000
2. Journal Entry for Business Combination
Date
Particulars
Dr. Amount
Cr. Amount
01/01/2016
Current Assets
Land
Building
Equipment
Goodwill
TO Current Liabilities
TO Long-term Liabilities
TO Cash
120,000
192,000
268,000
516,000
68,000
24,000
120,000
1,020,000
3. Goodwill on 1st Jan 2016 = $68,000
4. Calculation of Cash Balance in consolidated financials
Particulars
Amount
Receipt of cash in business combination
1,020,000
Less: Payment by Caleb in business combination
(1,020,000)
Add: Current assets of Kelton
120,000
Total Cash Balance
120,000
NOTE: It is assumed that current assets comprises of only cash in hand.
5. As per US GAAP & IFRS, goodwill purchased in the business combination is never amortized in the books of holding company. Such goodwill is required to be checked for the impairment loss at least once in a year. There Amortization amount on 31st Dec 2016 is NIL.
6. Since Caleb Inc. has acquired all the shares of Kelton company, 100% of the controlling interest lies with Caleb Inc. and no non-controlling interest is there in the company.
Date
Particulars
Dr. Amount
Cr. Amount
01/01/2016
Investment in Kelton
TO Cash
1,020,000
1,020,000
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