In: Accounting
Road Corporation acquired all of Conger Corporation’s voting shares on January 1, 20X2, for $470,000. At that time Conger reported common stock outstanding of $80,000 and retained earnings of $130,000. The book values of Conger’s assets and liabilities approximated fair values, except for land, which had a book value of $80,000 and a fair value of $100,000, and buildings, which had a book value of $220,000 and a fair value of $400,000. Land and buildings are the only noncurrent assets that Conger holds.
Required
a. Compute the amount of goodwill at the date of acquisition.
b. Give the eliminating entry or entries required immediately following the acquisition to prepare a consolidated balance sheet.
a. Goodwill represents the difference between the fair value of consideration and the fair value of net assets as at acquisition.
b. This entry is an adjustment to the book value of the subsidiary's non-current assets to align them with their fair value, and elimination of common stock and retained earnings of the subsidiary with the parent's investment in the subsidiary, along with the recording of the corresponding goodwill.