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In summary these two consolidation entries completely

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In summary, these two consolidation entries completely eliminate the balance in Peerless’s investment account, and the second entry assigns thedifferential to various balance sheet accounts. As in previous examples, it is helpful to visualize how the two consolidation entries “zero out”the investment account:As usual, we eliminate Special Foods’ acquisition date accumulated depreciation against the Buildings and Equipment account balance so that, combinedwith the excess value reclassification entry, it will appear as if these fixed assets were recorded at their acquisition costs.These entries are reflected in the worksheet in Figure 4–3. Although the reclassification entry is somewhat more complex than in the previous example,the differential allocation is conceptually the same in both cases. In each case, the end result is a consolidated balance sheet with the subsidiary’s assets andliabilities valued at their fair values at the date of combination.
page 151FIGURE 4–3January 1, 20X1, Worksheet for Consolidated Balance Sheet, Date of Combination; 100 Percent Acquisition at More than Book Value100 Percent Ownership Acquired at Less than Fair Value of Net AssetsLO 4–4Make calculations and prepare consolidation entries for the consolidation of a wholly owned subsidiary when there is a complex bargain-purchasedifferential.It is not uncommon for companies’ stock to trade at prices that are lower than the fair value of their net assets. These companies are often singled out asprime acquisition targets. The acquisition price of an acquired company may be less than the fair value of its net assets because some of the acquiree’s assetsor liabilities may have been incorrectly valued or because the transaction reflects a forced sale where the seller was required to sell quickly and was unable tofully market the sale.Obviously, if assets or liabilities acquired in a business combination have been incorrectly valued, the errors must be corrected and the assets and liabilitiesvalued at their fair values. Once this is done, if the fair value of the consideration given is still less than the fair value of the net assets acquired, a gainattributable to the acquirer is recognized for the difference. In general, as discussed in Chapter 1, a business combination in which (1) the sum of theacquisition-date fair values of the consideration given, any equity interest already held by the acquirer, and any noncontrolling interest is less than (2) theamounts at which the identifiable net assets must be valued at the acquisition date (usually fair values) is considered abargain purchase,and a gainattributable to the acquirer is recognized for the difference (as specified byASC 805).The purpose of the differential is to account for items attributable to the subsidiary company that are not already accounted for by that acquiring entity.

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Term
Spring
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Balance Sheet, net assets

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