On January 1, 2014, Company P purchased 100 percent of the outstanding voting shares of Company S in the open market for $ 80,000 cash. On that date, the separate statements of financial position (summarized) of the two companies reported the following carrying amounts:

It was determined on the date of acquisition that the fair value of the assets and liabilities of Company S were equal to their carrying amounts.
Required:
1. Prepare the journal entry that Company P made at the date of acquisition to record the investment. If none is required, explain why.
2. Analyze the acquisition to determine the amount of goodwill purchased.
3. Prepare a consolidated statement of financial position immediately after acquisition.

Transcribed Image Text:

Immediately after the Acquisition January 1. 2014 Company P Compan Assets Cash Investment in Co. S (at cost) Property, plant, and equipment (net) $18,000 $12,000 80,000 48,000 $140,000 42,000 Total assets $60,000 Liabilities 40,000 $ 9,000 Shareholders' equity Common shares: Company P Company S Retained earnings 90,000 40,000 10,000 $140,000 11,000 $60,000 Total liabilities and shareholders' equity