Capitol Company Decided to Sell One of Its Subsidiaries, Subsidiary

Essay

Capitol Company decided to sell one of its subsidiaries, Subsidiary ABC. BiRite Inc, is the purchaser of this subsidiary. BiRite paid $2,000,000 for Subsidiary ABC. BiRite performed a valuation analysis of Subsidiary ABC's assets acquired and liabilities. The following table presents book values from Subsidiary ABC's financial statements and fair values determined by BiRite:
$$\begin{array} { | l | r | r | } \hline \text { Description } & \text { Book Value } & \text { Fair Value } \\\hline \text { Inventory } & 420,000 & \$ 450,000 \\\hline \text { Accounts Receivable } & 330,000 & 330,000 \\\hline \text { Prepaid Assets } & 70,000 & 60,000 \\\hline \text { Equipment } & 290,000 & 410,000 \\\hline \text { Right-of-Use Building } & 330,000 & 360,000 \\\hline \text { Patent } & & 220,000 \\\hline \text { Trademark } & & 150,000 \\\hline \text { Current Liabilities } & 125,000 & 125,000 \\\hline \text { Lease Obligation } & 170,000 & 170,000 \\\hline \text { Other Long-term Liabilities } & 135,000 & 135,000 \\\hline & & \\\hline\end{array}$$
a. Prepare the journal entry made by BiRite to record the acquisition of Subsidiary ABC.
b. Describe how the journal entry would be different if the acquisition price was $1 million.