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In: Accounting

On June 10, 20X8, Game Corporation acquired 70 percent of Amber Company’s common stock. The fair...

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.

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago
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