CONSOLIDATION AT THE END OF THE FIRST YEAR SUBSEQUENT TO DATE OF ACQUISITION (PURCHASE PRICE GREATER THAN BOOK VALUE)
Assume that a parent company acquires its subsidiary on 1/1/xx, by exchanging 41,500 shares of its $1 par value common stock, with a market value on acquisition date of $36 per share, for all of the outstanding voting shares of the subsidiary. You have been charged with preparing the consolidation of these two entities at 12/31/xx.
On acquisition date (1/1/xx), all of the subsidiary's assets and liabilities had fair values equaling their book values except PPE assets are undervalued by $81,000 (depreciation =$5,400 per year), the subsidiary has an unrecorded patent with a fair value of $261,000 (amortization = $32,625 per year) and the parent records $162,000 of goodwill in the transaction.
Sample Solution