Question

In: Accounting

Bristle Corporation acquired 75 percent of Silver Corporation's common stock on December 31, 20X8, for $300,000....

Bristle Corporation acquired 75 percent of Silver Corporation's common stock on December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100,000. Silver's balance sheet immediately before the combination reflected the following balances:

Cash and Receivables$40,000

Inventory70,000

Land90,000

Buildings and Equipment (net)    250,000

Total Assets  $450,000

Accounts Payable$30,000

Income Taxes Payable40,000

Bonds Payable100,000

Common Stock100,000

Retained Earnings    180,000

Total Liabilities and Stockholders' Equity  $450,000

A careful review of the fair value of Silver's assets and liabilities indicated that inventory, land, and buildings and equipment (net) had fair values of $65,000, $100,000, and, $300,000 respectively. Goodwill is assigned proportionately to Bristle and the noncontrolling shareholders.

1. Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet immediately following the acquisition?
A. $0
B. $120,000
C. $65,000
D. $20,000

Answer: C

2. Based on the preceding information, what amount will be reported as investment in Silver Corporation stock in the consolidated balance sheet immediately following the acquisition?
A. $0
B. $210,000
C. $300,000
D. $400,000

Answer: A

Can you explain and show me why those are the answer?

Solutions

Expert Solution

1. Goodwill = 65000

Shareholder Holding Fair value
Parent 75%            300,000
Non controlling interest 25%            100,000
Fair value of subsidiary 100%            400,000
Ref Particulars Amount
a Fair value of entity         400,000
b Total value without goodwill         335,000
c=a-b Goodwill            65,000
On acqusition date
Value of subsidiary without goodwill
Common stock            100,000
Retained earnings            180,000
Fair value adjustment:
Inventory               -5,000
Land              10,000
Buildings              50,000
                                              -                         -  
                                              -                         -  
Total            335,000
Fair value adjustment
Account Book value Fair value Fair value adjustment
Inventory                               70,000              65,000               -5,000
Land                               90,000            100,000               10,000
Buildings                            250,000            300,000               50,000

2.

option A. 0 is correct

In the consolidated balance sheet investment in silver corporation is eliminated in worksheet entries.

ekkarill92 answered 8 months ago
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