Reference no: EM132849273
Problem - On January 2, 2019, Par Company purchased 25% of the outstanding common stock of Sub Company for $100,000 cash. Book value and fair value of Sub's net assets at the time of acquisition are:
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Book Values
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Fair Values
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Assets
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Cash
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$40,000
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$40,000
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Accounts receivable
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100,000
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100,000
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Inventories
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40,000
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50,000
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Equipment (net)
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240,000
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200,000
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Accumulated depreciation
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(60,000)
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$360,000
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Liabilities & Equities
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Accounts payable
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$110,000
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$110,000
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Note payable
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50,000
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40,000
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Capital stock
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100,000
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Retained earnings
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100,000
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$360,000
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At the end of the year, Sub Company reports net income of $40,000.
Additional information: 1. Sub's equipment has a remaining useful life of 5 years, no residual value.
2. Sub's notes payable will be matured on January 1, 2021.
Required -
1. Show the calculation of:
- Implied 100% acquisition cost
- The comparing between 100% fair value of net assets to 100% book value of net assets
- The comparing between 100% acquisition cost to 100% fair value of net assets
- Income from Sub, if Par is required to apply Equity Method.
2. If there is an "Unamortized Excess", prepare a table for allocating the unamortized excess, and the adjusted amount to Sub's income for 2019.
3. Prepare Par's journal entries for the investment during the year 2019.
4. Reconcile the ending balance of "Investment in Sub".