C4-3 Negative Retained Earnings
Understanding
Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a negative retained earnings balance on December 31, 20X6. Jacobs Corporation purchased 100 percent of Sloan’s common stock on January 1, 20X7.
Required
a. Explain how Sloan’s negative retained earnings balance is reflected in the consolidated balance sheet immediately following the acquisition.
b. Explain how the existence of negative retained earnings changes the consolidation worksheet entries.
c. Can goodwill be recorded if Jacobs pays more than book value for Sloan’s shares? Explain.
a) Sloan's is a full owned subsidary of Jacobs corporation.Negative retained earnings are treated as capital loss as they are existed as on the date of accquisition of Sloan company and they deducted from the reserves and surplus of its parent company i.e, Jacobs corporation.
b) Journal entries for business combination is
net identifiable assets A/c dr xxx
goodwill A/c dr xxx
To bank A/c xxx
To investment A/c xxx
c) Goodwill should be recorded if Jacobs pays more than book value for Sloan's shares.
Get Answers For Free
Most questions answered within 1 hours.