2. Parrot Company obtains some of the outstanding common stock of Sun Company on

ID: 2568271 • Letter: 2

Question

2. Parrot Company obtains some of the outstanding common stock of Sun Company on January 1, 2017. Parrot acquires Sun's 30% ownership interest for $250,000 in cash Sun Company's balances are shown below: Book Values Fair Values S320,000 100,000 200,000 Patented technology (10-year life).. 320,000 80,000 220,000 450,000 150,000 Inventory Common stock $40 par value(200,000) .. (20,000) For 2017, Sun earned $90,000, declared cash dividends of $60,000, and paid dividends of $40,000.Sun' inventory is always measured in perpetual, FIFO and Equipment was estimated in straight line depreciation without salvage value Required: (1) What's realized Goodwill for this acquisition? What's recognized amount for this Goodwill'? (2) What's amount of "Investment-Sun" on Parrot's 2017 Financial Statements? Prepare all related journal entries

Explanation / Answer

1. caluculation of retained earning=-380000

less dividend declared =-60000

Add:earning =+90000

Closing balance =-350000

2. calculation of depreciation=180000/5=36000

3. Caluculation of goodwill realised for the acquisition:

current assets 320000

inventory 100000

trademarks 200000

patents 320000

equipment less dep 144000

total 1084000

less:liabilities 420000

value of acuisition 250000

goodwill 414000

2.Amount of investments on parrot's financial statements:

coast of investments 250000

less:preacuisition devidend:60000*30% 18000

value of investments 232000

journal entries:

Transfer all Assets at book value to realization a/c ( except Miscellaneous)

Realisation A/C Dr

To Assets A/c

1084000

1084000

Transfer all liabilities taken over purchasing company(Except equity, preference and reserves)

Liabilities A/c Dr

To Realisation A/c

420000

Due entry for consideration
Transferee company A/C Dr250000
To Realisation A/c 250000

Receipt of consideration

Shares/Cash A/c Dr250000

To Transferee company A/c 250000