P Corp. purchased 80 percent of S Inc. common stock on January 1, 2017. At that
ID: 340831 • Letter: P
Question
P Corp. purchased 80 percent of S Inc. common stock on January 1, 2017. At that date, S reported retained earnings of $80,000 and had $120,000 of stock outstanding. The fair value of its buildings was $32,000 more than the book value. P paid $190,000 to acquire the S shares. At that date, the noncontrolling interest had a fair value of $47,500. The remaining economic life for all S's depreciable assets was 8 years on the date of combination. The amount of the differential assigned to goodwill is not impaired. S reported net income of $40,000 in 2017 and declared no dividends. Make the necessary consolidation entry or entries to prepare a full set of consolidated financial statements for 2017.
Explanation / Answer
the facts can be summarised as follows
P Corp acquired 80% shares for $190000 So, S Inc become its subsidiary. For passing consolidation entry we need to find the values of Identifiable Net Assets, Goodwill and Non COntrolling Inerest ( already given at Fairvalue ie $47500)
Calculation Of Identifiable Net Assets $
Share Capital On acquisition date - 120000
retained earnings on acquisition date- 80000
+ Revaluation of building - 32000
total 232000
Calculation Of Goodwill
Investment in S Corp 190000
+ Non Controlling Interest (FV) 47500
- Identifiable Net Assets 232000
Goodwill 5500
therefore Following entry can be passed on consolidation
Identifiable Net Assets Dr. 232000
Goodwill Dr. 5500
To Investments In S Corp 190000
To Non COntrolling Interest 47500
(Being Assets and liabilities of S corp Consolidated)
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