Question

Consolidation Problem

On January 1 2020, Starbucks acquired 100% of Dunkin’s outstanding common stock for $1,000,000 in cash. As of January 1 2020, the following fair values where determined.

• Dunkin’s Buildings had a FV in excess of BV of $150,000

• Dunkin’s Equipment had a FV in excess of BV of $40,000

• Dunkin had an unrecorded patent with a FMV of $10,000

For all other Dunkin Accounts as of Jan 1, 2020, all other GAAP book values equaled fair values.

Here is the balance sheet information on the date of acquisition (Jan 1 2020) All balances are normal balances

Jan 1 2020	Starbucks	Dunkin Donuts
Cash	100,000	100,000
A/R	300,000	200,000
Investment in Dunkin	842,000	N/A
Equipment	258,000	200,000
Building	900,000	400,000
Total Assets	2,600,000	900,000
Accounts Payable	(200,000)	(50,000)
Loans	(400,000)	(150,000)
Total Liabilities	600,000	200,000
Common Stock	100,000	100,000
APIC	300,000	200,000
Retained Earnings	1,600,000	400,000
Total Liabilities and Equity	2,600,000	900,000

1. Prepare a schedule of the fair value allocation schedule, including goodwill, if any, and including fair value excess over book value depreciation or amortization schedule, if any.

Answer 1

Fair value over the book value - Dunkin Donuts
Particulars	Book Value	Fair value Over Book Value	Net Fair Value
Equipment	200000	40000	2,40,000
Building	400000	150000	5,50,000
Fair Value of Assets acquired
Particulars	Fair Value
Cash	100000
A/R	200000
Equipment	240000
Building	550000
unrecorded patent	10000
Assets Acquired	1100000
Fair Value of Liabilities acquired
Accounts Payable	50000
Loans	150000
Liabilities Acquired	200000

Journal Entry

Fair value of assets acquired Dr. 1100000

Goodwill ( Balancing Fig.) Dr. 100000

To Fair value of liabilities Acquired 200000

To Cash 1000000

( Being Assets an liabilities acquired at fair value on acquisition and Goodwill Recognised on acquisition)