Although Sloan Company has good eranings reports in 2015 and 2016, it had a nega

Question

Although Sloan Company has good eranings reports in 2015 and 2016, it had a negative retained earnings balance on December 31,2016. Jacobs Corporation purchased 100 percent of Sloans's common Sotck on January 1,2017.

Explain how Sloan's negative retainined earning balance is reflected in the consolidated balance sheet immediately following the acquisition.

Explain how the existence of negative retained earnings changes the consolidation worksheet entries.

Can goodwill be recorded if Jacobs pays more than book value for Sloans's shares? Explain

Explanation / Answer

(1) Sloan's negative retainined earning balance is reflected in the consolidated balance sheet immediately following the acquisition:

   Negative retained earning in Sloan Company will be showing a "Debit Balance" , after 100% acquistion this debit balance will be adjusted by crediting the equity ( Common stock - Retained earning) by Jacobs Corporation. Due to this total equity of Jacob corporation will not be affected.

negative retained earning will not be in existence anymore in the process of consolidation of financial statement or Accounts.

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