In: Accounting
Consolidation of an International Subsidiary at Date of Acquisition
Fairview Corporation, a U.S. company, has a wholly-owned subsidiary in Mexico. The subsidary's functional currency is the Mexican peso, and translation to U.S. dollars is appropriate. The subsidiary was acquired for $10,800,000. The balance sheet of the subsidiary on the date of acquisition is as follows:
Mexican Subsidiary Balance Sheet at Date of Acquisition |
|
---|---|
Assets | |
Cash and receivables | P9,000,000 |
Inventories | 21,000,000 |
Noncurrent assets, net | 45,000,000 |
Total assets | P75,000,000 |
Liabilities and stockholders' equity | |
Liabilities | P15,000,000 |
Capital stock | 48,000,000 |
Retained earnings | 12,000,000 |
Total liabilities and stockholders' equity | P75,000,000 |
The fair values of the subsidiary's inventories are P30,000,000, and the fair values of the subsidiary's noncurrent assets are 42,000,000. All other amounts are reported at approximate fair value. The exchange rate at the date of acquisition is $0.10/peso.
Present a schedule showing the calculation of goodwill for the acquisition, in U.S. dollars, and the entries necessary to consolidate the balance sheets of Fairview and its subsidiary at the date of acquisition.
Instructions:
Calculation of goodwill (in thousands) | |||
---|---|---|---|
P | $/P | U.S.$ | |
Price Paid | Answer | Answer | Answer |
Book value | Answer | Answer | Answer |
Undervaluation of inventories | Answer | Answer | Answer |
Overvaluationof noncurrent assets | Answer | Answer | Answer |
Goodwill | Answer | Answer |
Enter answers in thousands.
ConsolidationJournal | ||
---|---|---|
Description | Debit | Credit |
(E) | ||
AnswerInvestment in subsidiaryInventoriesCapital stockCash | Answer | Answer |
Retained earnings | Answer | Answer |
AnswerCashCapital stockInvestment in subsidiaryInventories | Answer | Answer |
(R) | ||
AnswerInventoriesCashCapital stockInvestment in subsidiary | Answer | Answer |
Goodwill | Answer | Answer |
Noncurrent Assets | Answer | Answer |
AnswerCapital stockCashInvestment in subsidiaryInventories | Answer | Answer |
Calculation of goodwill (in thousands) | ||||||
---|---|---|---|---|---|---|
P | $/P | U.S.$ | ||||
Price Paid | PESO 108,000 | $0.10/peso | $10,800 | |||
Book value | PESO 60,000 | $0.10/peso | $ 6,000 | |||
Undervaluation of inventories | PESO 9,000 | $0.10/peso | $ 900 | |||
Over valuation of non-current assets | PESO 3,000 | $0.10/peso | $ 300 | |||
Goodwill | PESO 42,000 |
|
$ 4200 | |||
Schedule showing the calculation of goodwill for the acquisition, in U.S. dollars | ||||||||
PRICE PAID | $10,800 | |||||||
LESS :- | NET BOOK VALUE OF SUBSIDIARY | $ 6,000 | ||||||
CAPITAL STOCK | $ 4,800 | |||||||
RETAINED EARNINGS | $ 1,200 | |||||||
EXCESS PRICE PAID | $ 4,800 | |||||||
($ 10,800 - $ 6,000) | ||||||||
LESS :- | FAIR VALUE ADJUSTMENTS OF ASSETS PF SUBSIDIARY COMPANY | $ 600 | ||||||
INVENTORY (UNDERVALUED) + | $ 900 | |||||||
NON CURRENT ASSETS (OVERVALUED) - | $ 300 | |||||||
GOODWILL | = | $ 4200 | (EXCESS PRICE PAID - FAIR VALUE ADJUSTMENTS) |
Enter answers in thousands.
Consolidation Journal | ||||
CAPITAL STOCK | $4,800 | |||
RETAINED EARNINGS | $1,200 | |||
INVENTORY | $ 900 | |||
GOODWILL | $4,200 | |||
TO INVESTMENT IN SUBSIDIARY | $10,800 | |||
TO NON CURRENT ASSETS | $ 300 |