Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a nega

Question

Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a negative retained earnings balance on December 31, 20X6. Jacobs Corporation purchased 100 percent of Sloan's common stock on January 1, 20X7. Required: (a) Explain how Sloan's negative retained earnings balance is reflected in the consolidated balance sheet immediately following the acquisition. (b) Explain how the existence of negative retained earnings changes the consolidation worksheet entries. (c) Can goodwill be recorded if Jacobs pays more than book value for Sloan's shares? Explain

Explanation / Answer

goodwill is excess amount paid by a seller to buyer, over the book value of an asset.

a. negative retained earnings reflects in the balance sheet

b. the existed retained earnings value will be declined, because of the reduction.

c. yes, goodwill should be record in the balance sheet, if he paid excess amount to acquire shares.

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