Question

Exercise 5-4 On January 1, 2015, Porter Company purchased an 80% interest in Salem Company for...

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.

Homework Answers

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
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