Question

Exercise 5-4

On January 1, 2015, Porter Company purchased an 80% interest in Salem Company for $256,900. On this date, Salem Company had common stock of $210,300 and retained earnings of $128,400.

An examination of Salem Company’s balance sheet revealed the following comparisons between book and fair values:

		Book Value		Fair Value
Inventory		$29,600		$34,800
Other current assets		50,100		55,100
Equipment		303,400		347,200
Land		196,800		196,800

(a)

Determine the amounts that should be allocated to Salem Company’s assets on the consolidated financial statements workpaper on January 1, 2015.

Answer 1

	80% Parent company	20% NCI	Total
Purchase price and implied value	256900	64225	321125
Less:Book value of equity acquired
Common stock	168240	42060	210300
Retained earnings	102720	25680	128400
Total book value	270960	67740	338700
Difference between implied and book value
Equipment	4160	1040	5200
Land	4000	1000	5000
Inventory	35040	8760	43800
Balance	227760	56940	284700
Record new goodwill	43200	10800	54000
Balance	-	-	-

* Total purchase price = 256900/0.8 = 321,125

Workings:

	Excess of fair value over book value
Inventory	5200	[34800-29600]
Other current assets	5000	[55100-50100]
Equipment	43800	[347200-303400]
Land	0