Question
In: Accounting
Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $102,200....
Phone Corporation acquired 70 percent of Smart Corporation’s
common stock on December 31, 20X4, for $102,200. At that date, the
fair value of the noncontrolling interest was $43,800. Data from
the balance sheets of the two companies included the following
amounts as of the date of acquisition:
| Phone | Smart | |||||||||
| Item | Corporation | Corporation | ||||||||
| Cash | $ | 50,300 | $ | 21,000 | ||||||
| Accounts Receivable | 90,000 | 44,000 | ||||||||
| Inventory | 130,000 | 75,000 | ||||||||
| Land | 60,000 | 30,000 | ||||||||
| Buildings & Equipment | 410,000 | 250,000 | ||||||||
| Less: Accumulated Depreciation | (150,000 | ) | (80,000 | ) | ||||||
| Investment in Smart Corporation | 102,200 | |||||||||
| Total Assets | $ | 692,500 | $ | 340,000 | ||||||
| Accounts Payable | $ | 152,500 | $ | 35,000 | ||||||
| Mortgage Payable | 250,000 | 180,000 | ||||||||
| Common Stock | 80,000 | 40,000 | ||||||||
| Retained Earnings | 210,000 | 85,000 | ||||||||
| Total Liabilities & Stockholders’ Equity | $ | 692,500 | $ | 340,000 | ||||||
At the date of the business combination, the book values of Smart’s
assets and liabilities approximated fair value except for
inventory, which had a fair value of $81,000, and buildings and
equipment, which had a fair value of $185,000. At December 31,
20X4, Phone reported accounts payable of $12,500 to Smart, which
reported an equal amount in its accounts receivable.
a. Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination
1. Record the basic consolidation entry
2. Record the excess value reclassification entry
3. Record the entry to eliminate the intracompany accounts
4. Record the optional accumulated depreciation consolidation entry
(What standard entry could replace "differential"?)
Solutions
Expert Solution
Answer :-
Analysis of Acquisition
| Acquisition price paid by phone corporation | $ 102,200 |
| Fair value of non controlling interest | $ 43,800 |
| Fair value of smart's Corporation | $146,000 |
| Less: Book value of smart's Corporation | |
| Common stock | ( 40,000) |
| Retained stock | (85,000) |
| Excess Fair value over book value | 21,000 |
| Allocation of excess value to specified accounts | |
| Inventory ( 81,000 - 75,000 ) | ( 6,000 ) |
| Buildings and equipment ( 250,000 - 85,000 - 185,000) | ( 20,000) |
| Difference |
| A) | Recording of the consolidation entry | ||
| No | General Journal | Debit | Credit |
| a) | Common stock - Smart Corporation | $40,000 | |
| Retained earnings | $85,000 | ||
| Investment in Smart Corporation [ ( 40,000 + 85,000 ) * 70% ] | $87,500 | ||
| NCI in NA of Smart Corporation [ ( 40,000 + 85,000 ) * 30% ] | $37,500 | ||
| ( to record basic consolidation entry ) | |||
| Inventory | $6,000 | ||
| Buildings and equipment | $20,000 | ||
| Investment in Smart Corporation [ (6,000 + 20,000) * 70% ] | $18,200 | ||
| NCI in NA of Smart Corporation [ ( 6,000 + 20,000) * 30% ] | $7,800 | ||
| ( to record basic consolidation entry ) | |||
| Accounts payable | $12,500 | ||
| Accounts receivable | $12,500 | ||
| ( to eliminate the inter company accounts ) | |||
| Accumulated Depreciation | $80,000 | ||
| Buildings and equipment | $80,000 | ||
| ( to record the optional accumulated depreciation consolidation entry ) | |||
ekkarill92 answered 1 year agoRelated Solutions
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51,000
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