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In: Accounting
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 ----- ???
Solutions
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. | ||||
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