Question

Tancer Corporation paid $700,000 for 70 percent of the outstanding common stock of Hamelot Company on...

Tancer Corporation paid $700,000 for 70 percent of the outstanding common stock of Hamelot Company on January 1, 2020. At that time, Hamelot had the following condensed balance sheet:

Carrying amounts

Current assets

$120,000

Plant and equipment, net

$740,000

Liabilities

$360,000

Common Stock

$30,000

Additional paid in capital - Common Stock

$180,000

Retained Earnings

$290,000

The fair value of the plant and equipment was $870,000. The fair values and carrying amounts were equal for all other assets and liabilities. Provide the eliminating journal entry that would be required to consolidate the company’s financial statements on January 1, 2020.

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Answer #1

Consideration transferred on aquisition of control - $700,000

Fair value of net assets of company:

Current assets - $120,000

Plant and equipment - $870,000

Total assets - $990,000

Less: net liabilities - $360,000

Net assets at fair value = $630,000

Therefore, Goodwill = Consideration - FV of net assets

= $700,000 - $630,000

= $70,000

Elimination adjustment entry, for consolidating company's financial statements-

Account Dr Cr
Goodwill $70,000
Non-current assets $130,000
Company B common stock $30,000
Company B additional paid-up capital $180,000
Company B retained earnings $290,000
Investment in Company B (in books of Company A) $700,000
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