Question

On June 10, 20X8, Game Corporation acquired 70 percent of Amber Company’s common stock. The fair value of the noncontrolling interest was $24,000 on that date. Summarized balance sheet data for the two companies immediately after the stock purchase are as follows:

		Game Corp.			Amber Company
Item		Book Value		Book Value		Fair Value
Cash		$	27,800	$	9,000	$	9,000
Accounts Receivable			38,000		14,000		14,000
Inventory			89,000		24,000		29,000
Buildings & Equipment (net)			126,000		54,000		74,000
Investment in Amber Stock			56,000
Total		$	336,800	$	101,000	$	126,000
Accounts Payable		$	16,000	$	2,000		2,000
Bonds Payable			206,800		44,000		44,000
Common Stock			47,000		19,000
Retained Earnings			67,000		36,000
Total		$	336,800	$	101,000	$	46,000

a. Record the consolidation entries required to prepare a consolidated balance sheet immediately after the purchase of Amber Company shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the basic consolidation entry.

2. Record the excess value (differential) reclassification entry.

Answer 1

Since Game Corporation acquired 70% of common stock of Amber Corporation, non-controlling interest holds the remaining 30% of common stock of Amber Corporation.

Fair value of non-controlling interest (30%) =             $24,000

Investment by Game Corporation (70%)                                                =             $56,000

Total value (A) =             $80,000

Less: Fair value of net assets of Amber Corporation (B)

(Total assets- liabilities) ($126,000- $46,000)                                        =             $80,000

Goodwill (A)- (B) =             Nil

1. Elimination entry

Common stock of Amber Company = $19,000

Retained earnings of Amber Company = $36,000

Differential (refer computation below) = $25,000

Investment in Amber Company Stock = $56,000

Fair value of non-controlling interest = $24,000

Computation of differential

Fair value of consideration given by Game Corporation = $56,000

Fair value of non-controlling interest = $24,000

Total fair value (A) = $80,000

Book value of Amber’s net assets ($101,000- $46,000) (B) = $55,000

Differential (A)- (B) = $25,000

1. Excess value reclassification entry

Inventory (Refer (i) below)                                                                        =             $5,000

Buildings and Equipment (net) (Refer (ii) below) =             $20,000

               Differential =                                           $25,000

(i) $5,000 = $29,000- $24,000

(ii) $20,000 = $74,000- $54000