Acquisition at Other than Fair Value of Net Assets Mason Corporation acquired 100 percent ownership of...

Acquisition at Other than Fair Value of Net Assets

Mason Corporation acquired 100 percent ownership of Best Company on February 12, 20X9. At the date of acquisition, Best Company reported assets and liabilities with book values of $420,000 and $165,000, respectively, common stock outstanding of $80,000, and retained earnings of $175,000. The book values and fair values of Best’s assets and liabilities were identical except for land which had increased in value by $20,000 and inventories which had decreased by $7,000. The estimated fair value of Best as a whole at the date of acquisition was $295,000.

Required:

Give the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination assuming Mason acquired its ownership of Best for $280,000.

Expert Solution

Calculation of goodwill/capital reserve on acquisition

Cost of investment $280,000

Less Fair value of Net Assets of Best company $295,000

Capital reserve on acquisition $15,000

Accounting entries

Particulars Amount (Dr.) Amount (Cr.)

Net assets acquired A/C Dr. 295,000

To Investment in Best A/C 280,000

To Capital reserve A/C 15,000

(Being investment set off from assets)

ekkarill92 answered 2 years ago

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