On December 31, 2019, Purple Company purchased 80% of the common stock of Sage Company for $1,300,000. On this date, Sage had total owners' equity of $650,000 (common stock $100,000; other paid-in capital, $250,000; and retained earnings, $300,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Assets and liabilities with differences in book and fair values are provided in the following table: Book Fair Value Value Current assets $500,000 $700,000 Accounts receivable 200,000 150,000 Inventory 800,000 850,000 Land 100,000 450,000 Buildings and equipment, net 700,000 800,000 Current liabilities 800,000 850,000 Bonds payable 850,000 900,000 Remaining excess, if any, is due to goodwill. Required: Prepare the entry for Purple’s investment in Sage. Prepare a value analysis schedule. Prepare a schedule for determination and distribution of excess. Prepare the consolidated worksheet at December 31, 2019. Prepare the elimination journal entries.
On December 31, 2019, Purple Company purchased 80% of the common stock of Sage Company for $1,300,000. On this date, Sage had total owners' equity of $650,000 (common stock $100,000; other paid-in capital, $250,000; and retained earnings, $300,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Assets and liabilities with differences in book and fair values are provided in the following table: Book Fair Value Value Current assets $500,000 $700,000 Accounts receivable 200,000 150,000 Inventory 800,000 850,000 Land 100,000 450,000 Buildings and equipment, net 700,000 800,000 Current liabilities 800,000 850,000 Bonds payable 850,000 900,000 Remaining excess, if any, is due to goodwill. Required: Prepare the entry for Purple’s investment in Sage. Prepare a value analysis schedule. Prepare a schedule for determination and distribution of excess. Prepare the consolidated worksheet at December 31, 2019. Prepare the elimination journal entries.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 25E
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Question
- On December 31, 2019, Purple Company purchased 80% of the common stock of Sage Company for $1,300,000. On this date, Sage had total owners' equity of $650,000 (common stock $100,000; other paid-in capital, $250,000; and
retained earnings , $300,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Assets and liabilities with differences in book and fair values are provided in the following table:
|
|
Book |
Fair |
|
|
Value |
Value |
|
Current assets |
$500,000 |
$700,000 |
|
Accounts receivable |
200,000 |
150,000 |
|
Inventory |
800,000 |
850,000 |
|
Land |
100,000 |
450,000 |
|
Buildings and equipment, net |
700,000 |
800,000 |
|
Current liabilities |
800,000 |
850,000 |
|
Bonds payable |
850,000 |
900,000 |
Remaining excess, if any, is due to
Required:
- Prepare the entry for Purple’s investment in Sage.
- Prepare a value analysis schedule.
- Prepare a schedule for determination and distribution of excess.
- Prepare the consolidated worksheet at December 31, 2019.
- Prepare the elimination
journal entries.
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