Question

Paradise is the parent company and purchases a stake in Summit, the subsidiary. Paradise pays $720,000 for a 60% interest in Summit at a point when the total book value of Summit is $1,050,000. Summit has land with a fair market value that is $8,000 higher than its book value. Summit also has buildings, with a remaining five-year life, with market values $60,000 higher than book values and inventory valued on the books $40,000 lower than fair market value. Summit's equipment, with a remaining three-year life, has a book that is $3,000 higher than market value. Required: Complete the consolidation worksheet and the required consolidation entries. This submission is to be done in excel.

Answer 1

Consolidation Worksheet
Purchase Price Paid	$            720,000.00
% Holding in Sage	60%
Implied Value of Sage =720000/60%=	$         1,200,000.00
NCI at Implied Value =	480,000

	Allocation of Difference	60% Parent	40% NCI	Total
m	Purchase Consideration and Total Implied value	720,000	480,000	1,200,000
	Less Book Value of Equity Acquired
n	Total Book Value	630,000	420,000	1,050,000
o	Difference between Impied and Book Value=m-n	90,000	60,000	150,000
	Allocation of Difference
	Land	4,800	3,200	8,000
	Building	36,000	24,000	60,000
	Inventory	24,000	16,000	40,000
	Equipment	(1,800)	(1,200)	(3,000)
	Good Will Recognized (Balance Amount of excess of Implied value over Fair Value )	27,000	18,000	45,000
	Total Difference between Implied and Book Value Allocated	90,000	60,000	150,000

Consolidation Entry
Account Title	Dr $	Cr $
Equity Capital (Summit)	1,050,000
Investment in Summit		720,000
NCI		480,000
Difference between Implied and Book Value	150,000
Land	8,000
Building	60,000
Inventory	40,000
Equipment		3,000
Goodwill	45,000
Difference between Implied and Book Value		150,000