Question

Precision Company acquires all of Springfield Company's voting stock for $5,000,000 in cash. Information on Springfield's assets and liabilities at the date of acquisition is as follows:

	Book Value Dr (Cr)	Fair Value Dr (Cr)
Current assets	$ 500,000	$ 700,000
Land, buildings and equipment (net)	2,000,000	3,500,000
Liabilities	(600,000)	(550,000)
Capital stock	(500,000)
Retained earnings	(1,400,000)

In addition, Springfield Company has unrecorded identifiable intangible assets, in the form of brand names and lease agreements, with a total estimated fair value of $400,000.

In eliminating entry (R) on the consolidation working paper, the debit to goodwill is:

	A.	$ 950,000
	B.	$ 450,000
	C.	$ 50,000
	D.	$1,150,000

Answer 1

Preparation of eliminating entry value on the consolidation work sheet
Particulars	Fair Value
Dr (Cr)
Current assets	$700,000
Land, buildings and equipment (net)	$3,500,000
Identifiable intangible assets	$400,000
Liabilities	($550,000)
Identifiable Net assets	$4,050,000
Purchase consideration	$5,000,000
Less: Identifiable Net assets	($4,050,000)
Goodwill	$950,000	($5,000,000-$4,050,000)
The value debit to Goodwill is $950,000 . From the given options, Option (A) is correct