Reference no: EM13849729
Problem: Recording changes in value during the measurement period:
Parent Co. acquired 100% of subsidiary Co. on October 1, 2014, by paying $800,000 in cash. The price paid exceeds the fair value of the identifiable net assets by $95,000. At the time of acquisition, Subsidiary Co. had provisional values assigned to Land, Buildings, and Patent of $260,000, $125,000, and $50,000, respectively. Buildings are depreciated using the straight-line method over 20 years with $25,000 residual value. Patent is amortized over a 5-year period.
In early 2015, better estimates of values for these accounts became available. The new values for Land, Building, and Patent are $250,000, $150,000, and $60,000, respectively. There were no changes to residual value nor useful life.
Required:
1. Record the adjusting journal entries at year-end on December 31, 2014 for depreciation and amortization using the provisional information.
2. Record the journal necessary to adjust the provisional asset values to the new values based upon better estimates. This entry made in early 2015, when the improved information is received.
3. Record the journal entry to retroactively adjust depreciation/amortization for the prior period.
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