On September 30, 2019, X Corporation paid $450,000 for 75% of the outstanding $1 par common stock
Question:
On September 30, 2019, X Corporation paid $450,000 for 75% of the outstanding $1 par common stock of Y Company and $80,000 for legal fees in connection with the business combination. On that date, Y's stockholders' equity was as follows:
Common stock, $1 par $100,000
Additional paid-in capital 150,000
Retained earnings 200,000
Total stockholders' equity $450,000
Current fair values of Y's inventories (first-in, first-out cost) and depreciable plant assets (net) exceeded their carrying amounts by $20,000 and $90,000, respectively, on September 30, 2019. Current fair values of Y's other identifiable net assets equaled their carrying amounts on that date. Y's depreciable plant assets had a composite economic life of nine years on September 30, 2019. During that year 30% of the inventories were sold.
For the fiscal year ended September 30, 2020, Y had a net income of $80,000, but did not declare dividends, and the goodwill was impaired by 10%.
Instructions:
Prepare X Corporation's journal entries to record the business combination of X and Y Company on September 30, 2019. (3 marks)
Prepare working paper elimination (in journal entry format) for X Corporation and subsidiary on September 30, 2019. (2 marks)
Prepare amortization schedule for X Corporation and subsidiary on September 30,2020. (3 marks)
Prepare X Corporation's journal entries, under the equity method of accounting, to record Y Company's operating results for the fiscal year ended September 30, 2020. (2 marks)
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield