Eliminating Entries, Goodwill Polaris Company acquires all of the stock of SSC,

Question

Eliminating Entries, Goodwill

Polaris Company acquires all of the stock of SSC, Inc. for $60 million in cash. At the date of acquisition, SSC’s current assets had a book value of $20 million, its noncurrent assets had a book value of $80 million, and its liabilities had a book value of $90 million. It is determined that the book values of SSC’s net assets approximate fair value at the date of acquisition. SSC’s shareholders’ equity consists of capital stock of $2 million, retained earnings of $9 million (credit balance), and treasury stock of $1 million.

Required

Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Polaris and SSC at the date of acquisition.

Enter answers in millions.

Ref. Description Debit Credit (E) Capital stock Answer Answer AnswerGoodwillLiabilitiesNoncurrent assetsRetained earningsTreasury stockInvestment in SSC Answer Answer AnswerGoodwillLiabilitiesNoncurrent assetsRetained earningsTreasury stockInvestment in SSCInvestment in SSC Answer Answer Investment in SSC Answer Answer (R) AnswerGoodwillLiabilitiesNoncurrent assetsRetained earningsTreasury stockInvestment in SSC Answer Answer AnswerGoodwillLiabilitiesNoncurrent assetsRetained earningsTreasury stockInvestment in SSC Answer Answer

Explanation / Answer

Calculation of goodwill

Net assets acquired = All assets - All liabilities

= (20+80) - 90 i.e 10 million

Investments made = 60 million

Goodwill = Investments made - Net assets acquired

= 60 million - 10 million i.e 50 million

Elimination entries at the time of consolidation

Capital stock .....................Dr 1 million

Retained earnings ...............Dr 9 million

Treasury stock .....................Dr 1 million

To investments 10 million

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