Exam 5: Allocation and Depreciation of Differences Between Implied and Book Values

Phillips Company purchased a 90% interest in Standards Corporation for $2,340,000 on January 1, 2016. Standards Corporation had $1,650,000 of common stock and $1,050,000 of retained earnings on that date. The following values were determined for Standards Corporation on the date of purchase: Required: A. Prepare a computation and allocation schedule for the difference between the implied and book value in the consolidated statements workpaper. B. Prepare the January 1, 2016, workpaper entries to eliminate the investment account and allocate the difference between implied and book value.

On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016. What amount of goodwill will be reported?

Goodwill represents the excess of the implied value of an acquired company over the:

When the value implied by the acquisition price is below the fair value of the identifiable net assets the residual amount will be negative (bargain acquisition). Explain the difference in accounting for bargain acquisition between past accounting and proposed accounting requirements.

If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price, the workpaper entry to eliminate the investment account:

On January 1, 2016, Poole Company purchased 75% of the common stock of Swimmer Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016. What amount of inventory will be reported?

On January 1, 2016, Poole Company purchased 75% of the common stock of Swimmer Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016. What amount of goodwill will be reported?

On January 1, 2016, Pilsner Company acquired an 80% interest in Smalley Company for $3,600,000. On that date, Smalley Company had retained earnings of $800,000 and common stock of $2,800,000. The book values of assets and liabilities were equal to fair values except for the following: The equipment had an estimated remaining useful life of 8 years. One-half of the inventory was sold in 2016 and the remaining half was sold in 2017. Smalley Company reported net income of $240,000 in 2016 and $300,000 in 2017. No dividends were declared or paid in either year. Pilsner Company uses the cost method to record its investment in Smalley Company. Required: Prepare, in general journal form, the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31, 2017.

In preparing consolidated working papers, beginning retained earnings of the parent company will be adjusted in years subsequent to acquisition with an elimination entry whenever:

Plain Corporation acquired a 75% interest in Swampy Company on January 1, 2016, for $2,000,000. The book value and fair value of the assets and liabilities of Swampy Company on that date were as follows: The property and equipment had a remaining life of 6 years on January 1, 2016, and the deferred charge was being amortized over a period of 5 years from that date. Common stock was $1,500,000 and retained earnings was $900,000 on January 1, 2016. Plain Company records its investment in Swampy Company using the cost method. Required: Prepare, in general journal form, the December 31, 2016, workpaper entries necessary to: A. Eliminate the investment account. B. Allocate and amortize the difference between implied and book value.

The SEC requires the use of push down accounting when the ownership change is greater than:

Pullman Corporation acquired a 90% interest in Sleeter Company for $6,500,000 on January 1 2016. At that time Sleeter Company had common stock of $4,500,000 and retained earnings of $1,800,000. The balance sheet information available for Sleeter Company on January 1, 2016, showed the following: The equipment had a remaining useful life of ten years. Sleeter Company reported $240,000 of net income in 2016 and declared $60,000 of dividends during the year. Required: Prepare the workpaper entries assuming the cost method is used, to eliminate dividends, eliminate the investment account, and to allocate and depreciate the difference between implied and book value for 2016.

Pennington Corporation purchased 80% of the voting common stock of Stafford Corporation for $3,200,000 cash on January 1, 2016. On this date the book values and fair values of Stafford Corporation's assets and liabilities were as follows: Required: Prepare a schedule showing how the difference between Stafford Corporation's implied value and the book value of the net assets acquired should be allocated.

On November 30, 2016, Piani Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2016, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2016, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2016, consolidated balance sheet of Piani Incorporated, and its wholly owned subsidiary, Surge Company?

When the value implied by the purchase price of a subsidiary is in excess of the fair value of identifiable net assets, the workpaper entry to allocate the difference between implied and book value includes a:

When the implied value exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as: