In: Accounting
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.
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)