The balance sheets of Arrak Company and Bivak Company as of December 31, 2011, appear below.

Assume that Arrak purchased 100 percent of Bivak’s common stock for $350,000 immediately prior to December 31, 2011. Also assume that $80,000 of the excess of cost over book value is attributable to the increased value of Bivak’s property, plant, and equipment. The rest of the excess is considered by Arrak to be goodwill.

1. Prepare a work sheet for preparing a consolidated balance sheet as of the acquisition date.
2. If you were reading Arrak’s consolidated balance sheet, what account would indicate that Arrak paid more than fair value for Bivak, and where would you find it on the balance sheet? Also, would you expect the amount of this account to change from year to year? What would cause it tochange?

  • CreatedSeptember 10, 2014
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