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On January 1 2017 the balance sheets of Potter Co. and Hogwarts Co. were as follows:...

On January 1 2017 the balance sheets of Potter Co. and Hogwarts Co. were as follows:
Potter Hogwarts
cash 1,000,000 50,000
equipment 1,000,000 100,000
a/d equip 100,000 10,000
Land 2,000,000 20,000
building 3,000,000 100,000
a/d building 1,000,000 30,000
patent 50,000 50,000
total assets 5,950,000 280,000
accounts payable 1,000,000 40,000
notes payable 1,000,000 40,000
common stock $5 par 3,000,000 150,000
apic c/s 100,000 0
r/e 850,000 50,000
On January 2nd Potter acquired 80% of the stock of Hogwarts by issuing 50,000 shares of common stock when the stock was
selling for $11 per share. At that time the fair market value of Hogwarts assets were:
equipment 60,000
Land 30,000
building 110,000
patent 40,000
REQUIRED:
A) MAKE THE JOURNAL ENTRY POTTER MAKES WHEN IT ISSUES THE STOCK TO ACQUIRE HOGWARTS
B) MAKE THE JOURNAL ENTRY HOGWARTS MAKES WHEN POTTER ISSUES THE STOCK TO ACQUIRE HOGWARTS
C) MAKE ANY NECESSARY WORKSHEET ENTRIES
D) PREPARE A CONSOLIDATED BALANCE SHEET ON 1/2/2017
BONUS 2 PTS NO PARTIAL CREDIT: WHAT WOULD BE THE AMOUNT OF GOODWILL IF POTTER WAS DOING ITS BOOKS UNDER IFRS?

Solutions

Expert Solution

A) Journal entry in books of Potter
Dr Cr
Investment in Hogwarts               550,000
   To Share capital          250,000
    Securities Premium          300,000
B) Journal entry in books of hogwarts
Land                  10,000
Building 40,000
   Equipment account            30,000
   Patent            10,000
    Retained earning            10,000
  
C) Elimination entry
Share capital               120,000
Retained Earning 48,000
Goodwill               382,000
     Investment in Subsidiary          550,000
Consolidated balancsheet
Particulars Potter Hogwarts Elimination Consolidated Balanchesheet
Cash 1,000,000            50,000 1,050,000
Equipment 1,000,000          100,000 1,100,000
A/d equipment (100,000)          (40,000) (140,000)
Land 2,000,000            30,000 2,030,000
Building 3,000,000          100,000 3,100,000
Ad (1,000,000)            10,000 (990,000)
Patent 50,000            40,000 90,000
Investment in Hogwart 550,000                      -   (550,000) -  
Goodwill 382,000 382,000
6,500,000 290,000 (168,000) 6,622,000
Account Payable            1,000,000            40,000 1,040,000
Notes payable            1,000,000            40,000 1,040,000
Common Stock            3,250,000          150,000 (120,000) 3,280,000
Apic               100,000                      -   100,000
Securities premium               300,000 300,000
R/E               850,000            60,000 (48,000) 862,000
           6,500,000          290,000 (168,000) 6,622,000

ekkarill92 answered 2 years ago
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