Question

Part VI Push-Down Accounting (continued)

Question B:

Assume that Pop Corporation acquires a 90 percent interest in Son Corporation for $225,000 cash on January 1, 2016. Comparative balance sheets of the two companies immediately before the acquisition are as follows (in thousands):

                                                            Pop                                                          Son____________

                                                Book Value      Fair Value                    Book Value      Fair Value

Cash                                         $300                $300                            $ 10               $ 10

Accounts Receivable, net        100                100                                35                     40

Inventories                              110                140                                45                     55

Other current assets                   30                     30                                 10                     10

Plant assets – net                    200                270                               70                      95

   Total assets                           740                  840                            170                210               

Liabilities                                 100                100                                20                     20

Capital stock, $10 par             500                                                    130

Retained earnings                   140                                                        20

Total equities                          740                                                    170   

Required:

1. Write down the journal entry to record the 100 percent push-down adjustment (entity theory) on Son’s separate books at January 1, 2016.

Answer 1

Entry on Son’s books to reflect 100% push down
Account Titles	Debit	Credit
Push down under entity theory
Retained earnings	$           20,000
Accounts Receivable, net   (40-35)	$             5,000
Inventories (55-45)	$           10,000
Plant asset — net  (95-75)	$           25,000
Goodwill	$           60,000
Push down equity		$   120,000
Implied value of net assets ($225,000/.90)	$         250,000
Book value of net assets (130+20)	$         150,000
Total Excess	$         100,000
Excess allocated to:
Accounts Receivables	$             5,000
Inventories	$           10,000
Plant Asset	$           25,000
Goodwill for remainder	$           60,000
Total excess	$         100,000