UNIT $4$ POST PROBLEM $1$

On December $31,200$X P Corporation paid $$300,000$ cash for $80\%$ of the

common stock of S Company which becomes a subsidiary. Following

information is shown prior to the acquisition being recorded:

P Company

Assets Liabilities and Equity

Cash $580,000$ Liabilities $90,000$

Inventories $60,000$

Plant $340,000$ Common Stock, $$5$pv $100,000$

Paid in Capital $200,000$

Retained Earnings $590,000$

Total $980,000$ Total $980,000$

S Company

Assets Liabilities and Equity

Inventories $20,000$ Liabilities $30,000$

Other assets $40,000$ Long Term Debt $50,000$

Plant $140,000$ Common Stock, $$10$pv $40,000$

Paid in Capital $20,000$

Retained Earnings $60,000$

Total $200,000$ Total $200,000$

S market values are:

Plant $$250,000$

Inventory $$50,000$

$1.$ Prepare the entries in journal format to record the acquisition

and post to the general edger accounts. Consolidated entries S$,$ A$,$ I, D$,$ E

$2.$ Prepare a consolidation workpaper.

$3.$ Prepare consolidated balance sheet.

Consolidation Entry S

Common Stock

Additional paid in capial

Retained Earnings Beginning

Investment in Sub Company @ $90\%$ interest

NCI Investment in Sub @ $10\%$ interest

To eliminate beginning stockholder's equity accounts of the subsidiary along with book value portion of investment.

Consolidation Entry A

Customer Base

Goodwill

Investment in Sub Company

NCI investment in Sub Company

To recognize unamortized excess fair value and to allocate the unamortized fair value to the

non controlling interest. Goodwill is attributable proportionately to controlling and noncontrolling interests.

Consolidation Entry I

Equity in income of Sub

Investment in Sub Company

To eliminate the impact of intercompany income accrued by Perlman

Consolidation Entry D

Investment in Sub

Dividends Paid

To eliminate the impact of intercompany dividend payments made by the subsidiary to parent and NCI.

Consolidation Entry E

Amortization Expense

Customer Base

To recognize excess amortization of fair value adjustments are individually recorded during the current period.