Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Dem

Question

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.

Demers earns income and pays dividends as follows: 2014. 2015. 2016
net income. 100000. 120000. 130000
dividends. 40000. 50000. 60000

Assume the initial value method is applied. 
Make journal entry C if consolidation worksheet is to prepared

Explanation / Answer

Consideration for 80%= 500000

Fair value of demers on acquisition= 500000/80%= 625000

Non controlling interest= 625000*20%= 125000

Goodwill:

Movement during three years:

Elimination entry:

Account Amount Acquisition Common stock 300000 Retained earnings 210000 Equipment 30000 Building 40000 Goodwill (balance) 45000 Fair value 625000

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