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In: Accounting

3) Parrot Inc. acquired an 85% interest in Sparrow Corporation on January 2, 2014 for $42,500...

3) Parrot Inc. acquired an 85% interest in Sparrow Corporation on January 2, 2014 for $42,500 cash when Sparrow had Capital Stock of $15,000 and Retained Earnings of $25,000. Sparrow's assets and liabilities had book values equal to their fair values except for inventory that was undervalued by $2,000. Balance sheets for Parrot and Sparrow on January 2, 2014, immediately after the business combination, are presented in the first two columns of the consolidated balance sheet working papers.

Required: Compute the following and then complete the attached consolidated balance sheet working papers.

a.) Compute implied FV

b.) Determine the excess of FV over BV acquired (if any)

c.) Allocate any excess of FV over BV acquired as appropriate

d.) Complete the attached Consolidated Balance Sheet immediately after the business combination on January 2, 2014.

Solutions

Expert Solution

Preliminary Computations:
Implied fair value of Sparrow ($42,500 / 85%) 50000 ans a
Less: Book value of Sparrow's net assets 40000
Excess fair value over book value acquired 10000 ans b
Allocation of excess of fair value over book value:
Inventory 2000
Goodwill 8000
Excess of fair value over book value 10000
ans c ELIMINATIONS
Assets Parrot Sparrow debit credit Consolidated Balance sheet
Cash 63500 4000 67500
Accounts Receivables 75000 9000 84000
Inventories 39000 10000 2000 51000
Plant Assets – Net 170000 35000 205000
Investment in Sparrow 42500 42500
Goodwill 8000 8000
Total Assets 390000 58000 10000 42500 415500

Liabilities &Stockholders’ Equity
Payables 120000 18000 138000
Capital Stock 100000 15000 15000 100000
Retained Earnings 170000 25000 25000 170000
Non-Controlling Interest 7500 7500
Total Liabilities &Stockholders’ Equity 390000 58000 40000 7500 415500

ekkarill92 answered 2 years ago
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