Consolidation entries at date of acquisition (purchase price greater than book v

Question

Consolidation entries at date of acquisition (purchase price greater than book value)
A parent company acquires all of the outstanding common stock of its subsidiary for cash purchase price of $397,500. On the acquisition date, the subsidiary reported $90,000 for Common Stock and $67,500 for Retained Earnings. An examination of the subsidiary’s balance sheet revealed that book values were equal to fair values for all assets, except for an unrecorded patent, which the parent values at $142,500.

a. Prepare the entry that the parent makes to record the investment.

b. Prepare the [E] and [A] consolidation entries.

General Journal Description Debit Credit CHOOSE: Cash,Common stock,Equity investment,Goodwill, Retained earnings CHOOSE: Cash,Common stock,Equity investment,Goodwill, Retained earnings

Explanation / Answer

a. General Journal Description Debit Credit Equity investment $ 397,500 Cash $ 397,500 b. Consolidation Journal Description Debit Credit [E] Common stock $   90,000 Retained earnings $   67,500 Equity investment $ 157,500 [A] Patent $ 142,500 Goodwill $   97,500 (397500-157500-142500) Equity investment $ 240,000

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