Note that fair value enterprise method (FVE) is also referred to as entity theory. Identifiable net asset method (INA) is also referred to as Parent Company Extension method (PCE)

Chapter 4: Question 1 - 17 marks

OnDecember 30, year 2, Perch Corporation acquired a 70% interest in Salmon Corporation by purchasing 70% of the outstanding voting (common) shares of Salmon Corporation for cash. Perch's cost of the Investment in Salmon was $294,000. To complete the transaction, Perch incurred legal fees of $12,000.

On December 30, year 2, Perch assessed the book values of Salmon were equal to fair values with the exception of the following accounts:

Account	Book Value	Fair Value
Plant and equipment (at net)	$270,000	$310,000
Inventory	$102,000	$112,000
Long Term Debt	$108,000	$103,000

Condensed statements of financial position for Perch Corporation and Salmon Corporation onDecember 31, Year 2(the day after the purchase) are shown below:

	PERCH Corporation	SALMON Corporation
Cash	$ 22,000	$ 60,000
Accounts Receivable	80,000	48,000
Inventory	120,000	102,000
Investment in Salmon	294,000	----------
Plant and equipment (at net)	400,000	270,000
Total Assets	$ 916,000	$ 480,000
Current Liabilities	$216,000	$ 72,000
Long Term Debt	240,000	108,000
Common Shares	260,000	120,000
Retained Earnings	200,000	180,000
Total Liabilities and Shareholders' Equity	$916,000	$ 480,000

Perch prepares consolidated financial statements under the fair value enterprise (FVE) theory (also known as "entity" theory).

Required:

• Prepare the entry on Perch's books to record its investment in Salmon on December 30, year 2. (2 marks)
• Calculate the acquisition differential, goodwill and non-controlling interest (NCI) at acquisition date using the FVE (entity) theory. (4 marks)
• Prepare the acquisition eliminating worksheet entry at acquisition to facilitate the preparation of the consolidated financial statements. (3 marks)
• Prepare the consolidated balance sheet at December 31, year 2 using the direct method. Show all calculations for each account balance. (5 marks)
• Now assume Perch uses theIdentifiable Net Asset (INA) theory (also known asparent company extension (PCE) theory) to prepare its consolidated financial statements. What would be the value of goodwill and NCI at acquisition under the Identifiable net asset theory. (3 marks)