Question

Allocation schedule for fair value/book value differential and consolidated balance sheet at acquisition

Pop Corporation acquired 70 percent of the outstanding common stock of Son Corporation on January 1, 2016, for $350,000 cash. Immediately after this acquisition the balance sheet information for the two companies was as follows (in thousands)

                                                    Pop BV                        Book Value                         Fair Value

Assets                                                                                                                

Cash                                             $70                                 $40                                       $40

Receivables net                           160                                    60                                          60

Inventories                                  140                                    60                                        100

Land                                             200                                  100                                       120

Buildings net                                220                                   140                                       180

Equipment—net                           160                                   80                                         60                          

Investment in Sun                        350                                    -                                           -

Total Assets                                $1,300                           $480

Liabilities and Stockholders’ Equity

Accounts payable                      $180                              $160                                    $160

Other Liabilities                             20                                  100                                       80                

Common stock; $20 par              1,000                              200         

Retained earnings                       100                                  20

Total Equities                             $1,300                         $480

REQUIRED

1. Prepare a schedule to assign the difference between the fair value of the investment in Son and the book value of the interest to identifiable and unidentifiable net assets.

2. Prepare a consolidated balance sheet for Pop Corporation and Subsidiary at January 1, 2016.

Answer 1

a.

Excess Amount = Fair value of son corporation – Book value of son corporation

= (Cost of investment ÷ Share acquired) -$220

= ($350 ÷ 70%) -$220

= $280

Particulars	Fair value(a)	Book value(b)	Allocation(a-b)
Inventories	$100	$60	$40
Land	$120	$100	$20
Buildings	$180	$140	$40
Equipment	$60	$80	-$20
Other liabilities(b-a)	$80	$100	$20
Allocated to identifiable net assets			$100
Remaining amount allotted to goodwill			$180
Total of excess value over book value			$280

b.

Pop corporation and subsidiary consolidated balance sheet
at January 1, 2016
Particulars	Amount	Amount
Assets:
Current Assets:
Cash(70+40)	$110
Receivables(net) (160+60)	$220
Inventories(140+60+40)	$240	$570
Property plant and equipment:
Land(200+100+20)	$320
Buildings(net)(220+140+40)	$400
Equipment(net)(160+80-20)	$220	$940
Goodwill		$180
Total Assets		$1,690
Liabilities and Stockholder’s Equity
Liabilities:
Accounts payable(180+160)	$340
Other liabilities(20+100-20)	$100	$440
Stockholders’ Equity:
Capital stock	$1,000
Retained earnings	$100
Equity value of controlling stockholders	$1,100
Non controlling interest ($500×30%)	$150	$1,250
Total Liabilities and Stockholder’s Equity		$1,690