Question

Paco Company acquired 100 percent of the stock of Garland Corp. on December 31, 20X8. The stockholder's equity section of Garland's balance sheet at that date is as follows:

Common Stock	$300,000
Additional Paid-In Capital	500,000
Retained Earnings	400,000
Total	$1,200,000

Paco financed the acquisition by using $820,000 cash and giving a note payable for $400,000. Book value approximated fair value for all of Garland's assets and liabilities except for buildings which had a fair value $60,000 more than its book value and a remaining useful life of 10 years. Paco has an account payable to Garland in the amount of $30,000.

Questions:

a) How much investment was recorded by Paco on December 31, 20X8?

b) How much gain was recorded by Paco on December 31, 20X8?

c) How much differential was resulted in the consolidation entries on December 31, 20X8?

d) How much accumulated depreciation was credited by Paco in the consolidation entries on December 31, 20X8?

e) How much accumulated depreciation was credited by Paco in the consolidation entries on December 31, 2010?

Answer 1

Book Value Calculations:
	Total Book Value	=	Common Stock	+	Add. Paid-in Capital	+	Retained Earnings
Beginning Book Value	1,200,000		300,000		500,000		400,000

Basic consolidation entry:
Common Stock	300,000
Additional paid-in capital	500,000
Retained Earnings	400,000
Investment in Garland Corp.		1,200,000

Excess Value (Differential) Calculations:
	Total Book Value	=	Buildings	+	Goodwill
Beginning balance	80,000		60,000		20,000

Excess value (differential) reclassification entry:
Buildings	60,000
Goodwill	20,000
Investment in Garland Corp.		80,000
Eliminate Intercompany Accounts:
Accounts Payable	30,000
Accounts Receivable		30,000

Amortized excess value reclassification entry:
Depreciation Expense	6,000
Income from Garland Corp.		6,000