On January 1, 2015, Pruitt Company issued 25,500 shares of its common stock in e
ID: 2410231 • Letter: O
Question
On January 1, 2015, Pruitt Company issued 25,500 shares of its common stock in exchange for 85% of the outstanding common stock of Shah Company. Pruitt’s common stock had a fair value of $28 per share at that time (par value of $2 per share). Pruitt Company uses the cost method to account for its investment in Shah Company and files a consolidated income tax return. A schedule of the Shah Company assets acquired and liabilities assumed at book values (which are equal to their tax bases) and fair values follows.
Additional Information:
Pruitt uses the straight-line method for all depreciation and amortization purposes.
Part A) Prepare the stock acquisition entry on Pruitt Company’s books. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Part B) Prepare the elimination entries for a consolidatd statements workpaper on January 1, 2005, immediately after acquisition.
Item Book Value/Tax Basis Fair Value Excess Receivables (net) $125,000 $125,000 $ —0— Inventory 167,000 195,000 28,000 Land 86,500 120,000 33,500 Plant assets (net) 467,000 567,000 100,000 Patents 95,000 200,000 105,000 Total $940,500 $1,207,000 $266,500 Current liabilities $89,500 $89,500 $—0— Bonds payable 300,000 360,000 60,000 Common stock 120,000 Other contributed capital 164,000 Retained earnings 267,000 Total $940,500
Explanation / Answer
A.
B.
PRUITT COMPANY
Net assets at book value (940,500 - 389,500) 551000 Excess of fair value (266,500 - 60,000) 206500 Total value of the company 757500 85% interest acquired 643875 Price paid (25,500 * 28) 714000 Goodwill (714,000 - 643,875) 70125 Non controlling interest (757,500 - 643,875) 113625Related Questions
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