On June 10, 20X8, Game Corporation acquired 70 percent of Amber Company’s common
ID: 2550303 • Letter: O
Question
On June 10, 20X8, Game Corporation acquired 70 percent of Amber Company’s common stock. The fair value of the noncontrolling interest was $24,000 on that date. Summarized balance sheet data for the two companies immediately after the stock purchase are as follows:
Game Corp.
Amber Company
Item
Book Value
Book Value
Fair Value
Cash
$
27,800
$
9,000
$
9,000
Accounts Receivable
38,000
14,000
14,000
Inventory
89,000
24,000
29,000
Buildings & Equipment (net)
126,000
54,000
74,000
Investment in Amber Stock
56,000
Total
$
336,800
$
101,000
$
126,000
Accounts Payable
$
16,000
$
2,000
2,000
Bonds Payable
206,800
44,000
44,000
Common Stock
47,000
19,000
Retained Earnings
67,000
36,000
Total
$
336,800
$
101,000
$
46,000
a. Record the consolidation entries required to prepare a consolidated balance sheet immediately after the purchase of Amber Company shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. Record the basic consolidation entry.
2. Record the excess value (differential) reclassification entry.
Game Corp.
Amber Company
Item
Book Value
Book Value
Fair Value
Cash
$
27,800
$
9,000
$
9,000
Accounts Receivable
38,000
14,000
14,000
Inventory
89,000
24,000
29,000
Buildings & Equipment (net)
126,000
54,000
74,000
Investment in Amber Stock
56,000
Total
$
336,800
$
101,000
$
126,000
Accounts Payable
$
16,000
$
2,000
2,000
Bonds Payable
206,800
44,000
44,000
Common Stock
47,000
19,000
Retained Earnings
67,000
36,000
Total
$
336,800
$
101,000
$
46,000
Explanation / Answer
Since Game Corporation acquired 70% of common stock of Amber Corporation, non-controlling interest holds the remaining 30% of common stock of Amber Corporation.
Fair value of non-controlling interest (30%) = $24,000
Investment by Game Corporation (70%) = $56,000
Total value (A) = $80,000
Less: Fair value of net assets of Amber Corporation (B)
(Total assets- liabilities) ($126,000- $46,000) = $80,000
Goodwill (A)- (B) = Nil
Common stock of Amber Company = $19,000
Retained earnings of Amber Company = $36,000
Differential (refer computation below) = $25,000
Investment in Amber Company Stock = $56,000
Fair value of non-controlling interest = $24,000
Computation of differential
Fair value of consideration given by Game Corporation = $56,000
Fair value of non-controlling interest = $24,000
Total fair value (A) = $80,000
Book value of Amber’s net assets ($101,000- $46,000) (B) = $55,000
Differential (A)- (B) = $25,000
Inventory (Refer (i) below) = $5,000
Buildings and Equipment (net) (Refer (ii) below) = $20,000
Differential = $25,000
(i) $5,000 = $29,000- $24,000
(ii) $20,000 = $74,000- $54000
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