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On August 1, Year 5, A Company acquired 70 Percent of the common shares of C...

On August 1, Year 5, A Company acquired 70 Percent of the common shares of C Company for $700,000. On that date, the fair value of C’s identifiable net assets was $600,000 and the book value of its shareholders’ equity was $500,000

  1. Assume that fair value enterprise method will be used for valuation of subsidiary. What amount of non-controlling interest should be reported on the balance sheet on the date of acquisition?
  1. $0
  2. $150,000
  3. $180,000
  4. $300,000
  1. Assume that Identifiable net asset method will be used for valuation of subsidiary. What amount of no controlling interest should be reported on the consolidated balance sheet on the date of acquisition?
  1. $0
  2. $115,000
  3. $180,000
  4. $300,000
  1. On January 1, Year 5 ,PEB acquired 100 Percent of the common shares of SEB for $ 600,000.On that date , the fair value of SEB’s identifiable net assets was $700,000 . Which of the following is the appropriate treatment of $100,000 acquisition differential?
  1. It should be recognized as a gain on purchase.
  2. It should be allocated to identifiable non-monetary assets.
  3. It should be allocated to non-current assets with any remaining balance reported as an extraordinary item.
  4. A deferred credit should be set up and amortized over a maximum of five years
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Answer #1

Answer 1. D. Non controlling Asset = 700000/.7×.3 = $300000

2 . C. Non controlling interest :- 600000×.3 = $180000

3. it should be recognized as a gain on purchases because in this the bargain purchases says that when Assets acquired for less than fair market value. A corporate entity is acquired by another for an amount that is less than the fair market value of it's net Assets. And also it says that the acquirer to record the difference between the fair value of acquired net Assets and the purchase price as a gain on its income statement due to negative Goodwill.

The difference in the price paid and fair value is recorded as gain.

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