Consolidation entries at date of acquisition (purchase price greater than book value)
A parent company exchanges 12,000 shares of its $2 par value common stock, with a fair value of $9/share, for all of the shares owned by the subsidiary’s shareholders. On the acquisition date, the subsidiary reported $30,000 of contributed capital (i.e., common stock) and $45,000 of Retained Earnings. An examination of the subsidiary’s balance sheet revealed that book values were equal to fair values for all assets except for PPE (net), which has a book value of $40,000 and a fair value of $73,000.

a. Prepare the entry that the parent makes to record the investment.

b. Prepare the [E] and [A] consolidation entries.

Answer rating: 100% (QA)

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