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On January 1, 2019, Portugal Corporation bought 90% of the stock of Sweden Corporation for $500,000...

On January 1, 2019, Portugal Corporation bought 90% of the stock of Sweden Corporation for $500,000 (with cash). The NCI at date of acquisition was valued at $55,555.56. The Balance Sheets of the two companies immediately after Portugal acquired (January 1, 2019) Sweden Corporation showed the following amounts:

            Portugal        Sweden

Cash                                                  $   90,000    $ 110,000

Accounts Receivable                             160,000         40,000

Inventory                                              500,000       290,000

Land                                                  1,100,000       140,000

Buildings & Equipment - Net           1,000,000       420,000

Copyrights                                            100,000                  0

Investment in Sweden                          500,000                  0

     Total Assets                       $3,450,000   $1,000,000

Accounts Payable                             $ 410,000       200,000

Bonds Payable                                  1,040,000       300,000

Common Stock                                  1,000,000       300,000

Additional Paid in Capital                    200,000         50,000

Retained Earnings                                 800,000       150,000

Total Liabilities and Stockholders' Equity                    $3,450,000   $1,000,000

At the date of acquisition, Portugal owed Sweden $40,000. Also, on the date of acquisition the Book Value of the net assets of Sweden equaled its Fair Value. Any difference between the purchase price plus the value of the NCI and the Fair Value of the net assets is attributed to Goodwill. Portugal uses the equity method for its investment in Sweden. Required:

1. List all journal entries that Portugal made to record its investment in Sweden on the date of acquisition.

2. List all Elimination Entries that would need to be made in order to prepare a work paper for the consolidated Balance Sheet of Portugal and Sweden immediately after the combination (January 1, 2019).

3. Prepare a work paper for the consolidated Balance Sheet of Portugal and Sweden immediately after the combination (January 1, 2019). Show all necessary elimination entries in their proper columns. Use a letter coding system for each elimination entry. Use Figure 5-2 for general format, and syllabus for additional formal requirements. CHECK FIGURE: Consolidated Assets = $3,965,555.56

Solutions

Expert Solution

Acquisition analysis
Net asset book value
Common stock 300000
APIC 50000
Retained earnings 150000
500000
NCI 55555.56
Parent Purchase price 500000
Goodwill 55555.56
Portugal investment
Investment in Sweden 500000
To cash 500000
Elimination entries
Common stock 300000
APIC 50000
Retained earnings 150000
To investment in Sweden 450000
To NCI in NA 50000
Goodwill 55555.56
To investment in Sweden 50000
To NCI in NA 5555.556
Accounts payable 40000
To accounts receivable 40000
Workpaper
Portugal Sweden Dr Cr Consolidated
Cash 90000.00 110000.00 200000.00
Accounts receivable 160000.00 40000.00 40000.00 160000.00
inventory 500000.00 290000.00 790000.00
Land 1100000.00 140000.00 1240000.00
Buildings & Equipment-Net 1000000.00 420000.00 1420000.00
Copyrights 100000.00 0.00 100000.00
Investment in Sweden 500000.00 0.00 500000.00 0.00
Goodwill 55555.56 55555.56
Total assets 3450000.00 1000000.00 3965555.56
Accounts payable 410000.00 200000.00 40000.00 570000.00
Bonds payable 1040000.00 300000.00 1340000.00
Common stock 1000000.00 300000.00 300000.00 1000000.00
Additional Paid in capital 200000.00 50000.00 50000.00 200000.00
Retained earnings 800000.00 150000.00 150000.00 800000.00
NCI 55555.56 55555.56
Total liabilities and stockholders' equity 3450000.00 1000000.00 3965555.56

ekkarill92 answered 2 years ago
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