P company purchased a 70% interest in S company on January 1, 2015 for $3,000,000. The...

P company purchased a 70% interest in S company on January 1, 2015 for $3,000,000. The book value and fair value of the assets and liabilities of S company on that day were:

BOOK VALUE FAIR VALUE

Current assets $700,000 700,000

Equipment 1,600,000 2,000,000

Land 500,000 700,000

Deferred charge 400,000 400,000

Total Assets 3,200,000 3,800,000

Less: Liabilities (700,000) (700,000)

Net Assets: 2,500,000 3,100,000

The equipment had a remaining useful life of 8 years on January 1, 2015 and the deferred charge was being amortized over a period of 8 years from that date. C/S was $1,700,000 and Retained Earnings was $110,000 on that same date. P company uses partial-equity method to record its investment within S company.

Create the December 31, 2015 WORK PAPER ENTRIES that:

Eliminate the investment account
Allocate and amortize the difference between implied value and book value

Expert Solution

Computation of Cost of Control on 01-01-2015
Particulars	$
Investment (70%)	3,000,000
Less: Common stock	(1,190,000)
Less: Retained Earnings	(77,000)
Goodwill	1,733,000


Computation of Cost of Control on 01-01-2015
Particulars	$
Investment (70%)	3,000,000
Less: Current Assets	(490,000)
Equipment	(1,120,000)
Land	(350,000)
Add: Liabilities	490,000

Goodwill	1,530,000

Calculation of Allocation of Difference between Implied Value and Book Value

Particulars	Basis of Allocation	Goodwill	Life	Amortization
Current Assets	700,000	510,000	8	63,750
Equipment	1,600,000	1,165,714	8	145,714
Land	500,000	364,286	8	45,536
Less: Liabilities	(700,000)	(510,000)	8	(63,750)
Total	2,100,000	1,530,000		191,250

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