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Unformatted text preview: E5-12 Consolidation after One Year of OwnershipSteadry Corporation purchased 80 percent of Lowe Corporation's stock on January 1, 20X2. At that dateLowe reported retained earnings of $80,000 and had $120,000 of stock outstanding. The fair value of itsequipment and buildings was $32,000 more than the book value. Steadry paid $190,000 to acquire theLowe shares. The remaining economic life for all Lowe's depreciable assets was eight years on the dateof combination. The amount of the differential assigned to goodwill is not amortized. Lowe reported netincome of $40,000 in 20X2 and declared no dividends.Requireda. Give the eliminating entries needed to prepare a consolidated balance sheet immediately after Steadry The purchase price is 190,000The total equity is 120,000+80,000=200,000 and 80% has been purchased. The underlying book value ofThe differential is 190,000-160,000 = 30,000The total value of Lowe Corporation becomes 200,000+30,000=230,000Held by Steady is 190,000The balance $40,000 would be non controlling interest.The allocation of differential would beThe fair value of building and equipment is 32,000 higher.80% of this would be with Steadry = 32,000X0.8 = 25,600The remaining differential would be goodwillAmount of goodwill = 30,000-25,600=4,400.Eliminating entries:Dr.Cr.Common Stock - Lowe Corporation 120,000Retained Earnings, January1 80,000Differential 30,000190,00040,000(To eliminate investment balance.)Buildings and Equipment 25,600Goodwill4,40030,000(To assign the differential)b. Give all eliminating entries needed to prepare a full set of consolidated financial statements for 20X2.The eliminating entries for full set would need to eliminate the net income of Lowe which is assigned to Net income of Lowe = 40,000Amount assigned to Steadry = 40,000X0.8 = 32,000Extra depreciation on the fair value of assets over their useful life of 8 years...
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This note was uploaded on 03/22/2010 for the course ACC ACC448 taught by Professor Dell during the Spring '10 term at University of Phoenix.
- Spring '10