On January 1 2017 the balance sheets of Potter Co. and Hogwarts Co. were as foll

Question

On January 1 2017 the balance sheets of Potter Co. and Hogwarts Co. were as follows: Potter Hogwarts cash 1,000,000 50,000 equipment 1,000,000 100,000 a/d equip 100,000 10,000 Land 2,000,000 20,000 building 3,000,000 100,000 a/d building 1,000,000 30,000 patent 50,000 50,000 total assets 5,950,000 280,000 accounts payable 1,000,000 40,000 notes payable 1,000,000 40,000 common stock $5 par 3,000,000 150,000 apic c/s 100,000 0 r/e 850,000 50,000 On January 2nd Potter acquired 80% of the stock of Hogwarts by issuing 50,000 shares of common stock when the stock was selling for $11 per share. At that time the fair market value of Hogwarts assets were: equipment 60,000 Land 30,000 building 110,000 patent 40,000 REQUIRED: A) MAKE THE JOURNAL ENTRY POTTER MAKES WHEN IT ISSUES THE STOCK TO ACQUIRE HOGWARTS B) MAKE THE JOURNAL ENTRY HOGWARTS MAKES WHEN POTTER ISSUES THE STOCK TO ACQUIRE HOGWARTS C) MAKE ANY NECESSARY WORKSHEET ENTRIES D) PREPARE A CONSOLIDATED BALANCE SHEET ON 1/2/2017 BONUS 2 PTS NO PARTIAL CREDIT: WHAT WOULD BE THE AMOUNT OF GOODWILL IF POTTER WAS DOING ITS BOOKS UNDER IFRS? On January 1 2017 the balance sheets of Potter Co. and Hogwarts Co. were as follows: Potter Hogwarts cash 1,000,000 50,000 equipment 1,000,000 100,000 a/d equip 100,000 10,000 Land 2,000,000 20,000 building 3,000,000 100,000 a/d building 1,000,000 30,000 patent 50,000 50,000 total assets 5,950,000 280,000 accounts payable 1,000,000 40,000 notes payable 1,000,000 40,000 common stock $5 par 3,000,000 150,000 apic c/s 100,000 0 r/e 850,000 50,000 On January 2nd Potter acquired 80% of the stock of Hogwarts by issuing 50,000 shares of common stock when the stock was selling for $11 per share. At that time the fair market value of Hogwarts assets were: equipment 60,000 Land 30,000 building 110,000 patent 40,000 REQUIRED: A) MAKE THE JOURNAL ENTRY POTTER MAKES WHEN IT ISSUES THE STOCK TO ACQUIRE HOGWARTS B) MAKE THE JOURNAL ENTRY HOGWARTS MAKES WHEN POTTER ISSUES THE STOCK TO ACQUIRE HOGWARTS C) MAKE ANY NECESSARY WORKSHEET ENTRIES D) PREPARE A CONSOLIDATED BALANCE SHEET ON 1/2/2017 BONUS 2 PTS NO PARTIAL CREDIT: WHAT WOULD BE THE AMOUNT OF GOODWILL IF POTTER WAS DOING ITS BOOKS UNDER IFRS?

Explanation / Answer

A) Journal entry in books of Potter Dr Cr Investment in Hogwarts               550,000    To Share capital          250,000     Securities Premium          300,000 B) Journal entry in books of hogwarts Land                  10,000 Building 40,000    Equipment account            30,000    Patent            10,000     Retained earning            10,000    C) Elimination entry Share capital               120,000 Retained Earning 48,000 Goodwill               382,000      Investment in Subsidiary          550,000 Consolidated balancsheet Particulars Potter Hogwarts Elimination Consolidated Balanchesheet Cash 1,000,000            50,000 1,050,000 Equipment 1,000,000          100,000 1,100,000 A/d equipment (100,000)          (40,000) (140,000) Land 2,000,000            30,000 2,030,000 Building 3,000,000          100,000 3,100,000 Ad (1,000,000)            10,000 (990,000) Patent 50,000            40,000 90,000 Investment in Hogwart 550,000                      -   (550,000) -   Goodwill 382,000 382,000 6,500,000 290,000 (168,000) 6,622,000 Account Payable            1,000,000            40,000 1,040,000 Notes payable            1,000,000            40,000 1,040,000 Common Stock            3,250,000          150,000 (120,000) 3,280,000 Apic               100,000                      -   100,000 Securities premium               300,000 300,000 R/E               850,000            60,000 (48,000) 862,000            6,500,000          290,000 (168,000) 6,622,000

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