Reference no: EM133030

Question :

On January 1, 2011, Porter Company purchased a 90 percent interest in the capital stock of Salem Company for $850,000. The fair value of the no controlling interest was proportionate to the consideration paid by the controlling interest. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000. Differences between the book value and the fair value of the identifiable assets of Salem Company were as given:

Under (Over) Valued

Equipment     120,000

Land            25,000

Inventory    40,000

In-Process Research & Development 40,000

Bonds payable  (10,000)

The book values of all other assets and liabilities of Salem Company were equal to their fair values on January 1, 2011. The inventory was sold in 2011 and the equipment has a 5-year remaining life as of January 1, 2011. The bonds payable mature in 5 years from January 1, 2011. Any goodwill is not impaired as of 12/31/13. The In-Process Research & Development is not impaired as of 12/31/13. At 12/31/13, Salem owes Porter $25,000.