Question

EXERCISE 5-2 End of the Year of Acquisition Workpaper Entries LO 1 LO 9

On January 1, 2020, Payne Corporation purchased a 75% interest in Salmon Company for $585,000. A summary of Salmon Company’s balance sheet on that date revealed the following: Book Value Fair Value Equipment $525,000 $705,000 Other assets  150,000    150,000 $675,000   $855,000 Liabilities $ 75,000 $ 75,000 Common stock 225,000 Retained earnings  375,000   $675,000   The equipment had an original life of 15 years and has a remaining useful life of 10 years. Required: For the December 31, 2020, consolidated financial statements workpaper, prepare the workpaper entry to allocate and depreciate the difference between book value and the value implied by the purchase price assuming: Equipment is presented net of accumulated depreciation. Accumulated depreciation is presented on a separate row in the workpaper and in the consolidated statement of financial position.

Answer 1

Answer:

Computation and Allocation of Difference between implied and Book Value
	Payne's share	Non-Controlling share	Full share
Cost (Purchase price)	585,000	195,000	780,000
Less: Book value of equity	450,000	150,000	600,000
Difference between implied and book value	135,000	45,000	180,000
Adjust to Fair value:
Equipment	(150,000)	(50,000)	(200,000)
Accumulated depreciation	15,000	5,000	20,000
Balance (Excess of fair value over implied value)	-	-	-

	Fair value	Book Value	Difference
Equipment	$   783,333	$   583,333	$     200,000
Acumulated depreciation	(78,333)	(58,333)	(20,000)
Other assets	150,000	150,000	-
Liabilities	(75,000)	(75,000)	-
Identifiable net assets	780,000	600,000	180,000

	Journal Entry:
	General Journal	Debit	Credit
1	Retained earnings-Salmon	$           375,000
	Capital stock-Salmon	225,000
	Difference between implied and book value	180,000
	Investment in Salmon Company		$           585,000
	Non-controlling interest in Equity (NCI)		195,000
2	Equipment	200,000
	Accumulated depreciation		20,000
	Difference between implied and book value		180,000