Exercise 4-11 On January 1, 2017, Plutonium Corporation acquired 80% of the outs

Question

Exercise 4-11 On January 1, 2017, Plutonium Corporation acquired 80% of the outstanding stock of Sulfurst Inc. for $256,500 cash. The following balance sheet shows Sulfurst Inc.'s book values immediately prior to acquisition, as well as the appraised values of its assets and liabilities by Plutonium's experts. Sulfurst Inc. 's Sulfurst Inc. Book ValuesMarket Valu Current assets $98,500 $98,500 Property, plant & equipment 76,200 157,000 $331,700 $104,000 97,000 20,400 110,300 $331,700 Land 97,500 Building & machinery (net) 157,000 Total assets Total liabilities Common stock, $5 par value Additional paid-in-capital Retained earnings Total liabilities and equities $104,000 ? (a) Prepare a Computation and Allocation Schedule for the Difference between Book Value and the Value Implied by the Purchase Price Parent Share Non- Controlling Share Entire Value SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT

Explanation / Answer

Answer :-

(a)

Parent Share = 80% of Entire Share

Non-Controlling Share = Entire Share - Parent Share OR 20% of Entire Share

Now,

Plutonium Corporation acquired 80% of the outstanding stock of Sulfurst Inc for $256,500 cash on January 1st 2017

Hence,

Parent Share of Purchase Price & Implied Value = Entire Share of Purchase Price & Implied Value x 80%

$256,500 = Entire Share of Purchase Price & Implied Value x 80%

Entire Share of Purchase Price & Implied Value = $256,500 / 80%

= $320,625

Now,

Entire Share of Book Value of Equity Acquired = Book Value Total Assets - Book Value Total Liabilities

= $331,700 - $104,000 = $227,700

Entire Share of Land = Land Market Value - Land Book Value

= $97,500 - $76,200

= $21,300

Goodwill Entire Value = Entire Value Of Purchase Price & Implied Value - (Total Assets Market Value - Total Liabilities Market Value)

= $320,625 - ( $98,500 + $97,500 + $157,000 - $104,000) = $320,625 - $249,000

= $71,625

Hence,

The Balance at last comes to $0 as the balance after deducting Book Value & Land from Purchase Price & Implied Value is EQUAL to company's Goodwill

Parent Share Non-Controlling Share Entrie Share Purchase Price & Implied Value $256,500 $64,125 $320,625 Less : Book Value of Equity Acquired - $182,160 $45,540 $227,700 Difference Between Implied & Book Value = $74,340 $18,585 $92,925 Land - $17,040 $4,260 $21,300 Balance = $57,300 $14,325 $71,625 Goodwill - $57,300 $14,325 $71,625 Balance = $0 $0 $0

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