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.
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