Question

Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date of acquisition, Scrub Company reported assets and liabilities with book values of $436,000 and $171,000, respectively, common stock outstanding of $80,000, and retained earnings of $185,000. The book values and fair values of Scrub’s assets and liabilities were identical except for land, which had increased in value by $21,000, and inventories, which had decreased by $6,000.
Required:
Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $266,000.

Answer 1

Answer:

Journal Entry at Acquisition Date:

Debits :

Assets                                                                  $409,000

Goodwill                                                                 $28,000

Credit :

Liabilities                                                                $171,000

Investment in Subsidiary : Scrub Company      $266,000

Explanation:

Power Corporation now has control over Scrub Company after acquiring 100% ownership of Scrub Company. Power Corporation is therefore required to consolidated Financial Statements in terms of IFRS 3.

Assets and Liabilities are Consolidated at their Acquisition Date Fair Values Not Book Values.

The Excess of the Purchase Consideration over the Net Assets Identified at Fair Value is called Goodwill.

Journal Entry at Acquisition Date:

Debits :

Assets ($436,000 + $21,000 - $6,000)             $409,000

Goodwill (Balancing figure)                                  $28,000

Credit :

Investment in Subsidiary : Scrub Company      $266,000