Reference no: EM132004131

Question - P Corporation acquired 100 percent of S Company's assets on January 1, 2011, by issuing 1,250,000 shares of its $1 par common stock. The common stock issue in the acquisition had a market value of $80.80 per share. Balance sheets of both companies immediately prior to the acquisition are shown below.

1. Determine the amount of goodwill, if any, P Corporation should record upon its acquisition of S Company's assets. Yes, P Corporation does have goodwill as well.

2. Prepare the journal entries required under GAAP for P Corporation and for S Company to record the acquisition of S Company's assets by P Corporation on January 1, 2011.

3. Assume that instead of acquiring the assets of S Company, P Corporation acquired 100 percent of the company's $1 par common stock. Prepare the journal entries required under GAAP for P Corporation to record the stock acquisition.

4. Based on the assumptions in Item 3, prepare the appropriate journal entry to eliminate the investment account and the equity accounts of S Company.

5. Under GAAP, it is necessary to test goodwill recorded in a business combination for impairment. Assume that the estimated book value of S Company's net assets on December 31, 2011, is $93 million. The fair value of S Company based on the analysis of its projected cash flows (discounted) is $92 million.

a. Prepare a schedule illustrating the calculations the auditors of the company would make to determine if there is an impairment of goodwill.

b. Is there an impairment of the goodwill that P Corporation records? If so, prepare the journal entry to record this impairment.