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Consolidation on date of acquisition - Equity method with noncontrolling interest and AAP Assume that a...

Consolidation on date of acquisition - Equity method with noncontrolling interest and AAP
Assume that a parent company acquires an 80% interest in its subsidiary for a purchase price of $3,724,800. The excess of the total fair value of the controlling and noncontrolling interests over the book value of the subsidiary’s Stockholders’ Equity is assigned to a building (in PPE, net) that the parent believes is worth $100,000 more than its book value, an: unrecorded Patent that the parent valued at $200,000, and Goodwill of $300,000, 80% of which is allocated to the parent. The parent and the subsidiary report the balance sheets on the acquisition date in b. below:

a. Prepare the consolidation entries on the acquisition date.

Debit Credit

Common Stock ??? ----

APIC ??? ----

Retained Earnings ??? ----

Equity Investment ----- ???

Non controlling Interest ----- ???

PPE, Net ??? ----

Patent ??? ----

Goodwill ??? ----

Equity Investment ----- ???

Non controlling Interest ----- ???

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Expert Solution

$
80% stake acquired for $ 3,724,800
Value of 100% holding 4,656,000
Value of Non controlling int (20%) 931,200
Break up of excess Value paid (over book value)
$
PPE (Building) 100,000
Unrecorded Patents 200,000
Good will 300,000
Total excess valuation 600,000
Acquisition value of 100% stake 4,656,000
Less: Excess valuation as above 600,000
Book Value of subsidiary on acquisition date 4,056,000
Journal entry in the books of subsidiary: Debit $ Credit $
$ $
                1 Investment in Subsidiary 3724800
    Bank 3724800
(being entry for acquistion of 80% stake in subsdiary)
entry for Consolidation & elimination of investment:
2 Plant & Equipment net & other assets            4,156,000
Patent               200,000
Goodwill               300,000
      Equity Investment (in subsidiary)                    3,724,800
     Liabilities                                   -  
    Non controlling interest                        931,200
(entry for incorporating all the assets & liabilities of subsidiary, at fair value.
Goodwill recognised as Cost of investment is more than the value acquired.
Noncontrolling interest is recognised)
- Building included in PPE is the balancing figure, as information not specifically given.

ekkarill92 answered 2 years ago
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