Reference no: EM132692791
Question - On December 1, 2020 P and S Corporation come to an agreement where P will acquire 40% of the ordinary shares of S from its existing stockholders by issuing 400,000 ordinary shares with P1 par. The shares have a fair value of 1.20 per share on the date of agreement. Before this agreement, on November 30, P has an existing 40% investment in the ordinary shares of S. P accounted the existing investment as an investment in associate and has a book value and fair value of 400,000 and 500,000 on acquisition date, respectively.
On December 31, 2020, P Corporation issued the 400,000 ordinary shares to S corporation. On such date, the shares have a fair value of 1.75 per share.
P corporation paid 41,145 in stock issuance costs.
Assume that the fair value of non-controlling interest is 400000
P Corporation's December 31, 2020 statement of financial position presents the following:
Assets
Cash 2,457,813
Accounts Receivable 999,014
Inventory 913,131
Investment in Associate 400,000
Land 3,214,784
Building (net) 2,333,333
Total Assets 10,318,075
Liabilities and Equity
Accounts Payable 1,999,999
Bonds Payable 1,478,632
Common stock (P1 par) 4,200,698
Additional paid in capital 1,154,008
Retained earnings 1,484,738
Total Liabilities and Equity 10,318,075
The assets and liabilities of P at December 31, 2020 are properly valued, except:
1. Inventory should have a fair value of 1,100,000
2. Land should be fairly valued at 2,500,000
S Corporation's December 31, 2020 statement of financial position presents the following:
Assets
Cash 88,888
Accounts Receivable 248,888
Inventory 188,888
Trademark 48,888
Land 488,888
Building (net) 348,888
Total Assets 1,413,328
Liabilities and Equity
Accounts Payable 88,888
Bonds Payable 398,888
Common stock (P1 par) 488,888
Additional paid in capital 248,888
Retained earnings 187,776
Total Liabilities and Equity 1,413,328
The assets and liabilities of S at December 31, 2020 are properly valued, except:
1. Inventory should have a fair value of 149,999
2. An unrecognized intangible asset (franchise) fairly valued at 39,999
3. Land should be fairly valued at 599,999
Assume P used cost method to account the subsidiary, and accounts NCI at Fair Value
Required - Record the transactions to account the investment
1. Prepare working paper elimination entries to prepare the consolidated financial statements.
2. Prepare the consolidated statement of financial position at the date of acquisition.