LN -solution to Ch 4 in-class examples

LN -solution to Ch 4 in-class examples - Ch 4: Outside...

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Ch 4: Outside Ownership ACCT 501, SP 12 6. Example 1: Noncontrolling Interest Assume that PJ Corporation acquired 90% of Slipper Company’s 10,000 shares of outstanding stock. At acquisition date, PJ assessed the total fair market value of Slipper’s net identifiable assets (NIAs) at $500,000. Although Slipper’s stock had been trading for $50 per share, PJ had to pay $60 per share to induce enough stockholders to sell. Required: 1) What is the fair value of the noncontrolling interest in Slipper? $50,000. 2) What is the total acquisition-date fair value of Slipper Company? $590,000. 3) Is there any acquired goodwill? $90,000. 3. Example 2 (in millions): Pants pays $42.6 cash for 80% of the stock of Socks on January 1, 2010. Socks' book value equals $10, consisting of $2.5 of stock and $7.5 of retained earnings. The book values of net assets equal fair value except for previously unrecorded customer lists valued at $5 with a 4- year life. The estimate of the fair value of the 20% noncontrolling interest is $8.4. Required: 1) determine the amount of acquired goodwill. Pants’ Acquisition cost $ 42.6 Fair value of noncontrolling interest 8.4 Total fair value 51 Book value of Socks (10) Fair value in excess of Socks' book value 41 Difference between fair value and book value: Customer lists (5) Goodwill $ 36
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ACCT 501, SP 12 2 Required: 2) determine the amount of acquired goodwill to be allocated between controlling and noncontrolling interests. Step 1 – Allocate goodwill to controlling interest: Acquisition cost $ 42.6 Less controlling interest in the fair value of Socks’ identifiable net assets: ( 12) Controlling interest’s share $ 30.6 Step 2 – Allocate balance of goodwill to non-controlling interest: Total goodwill $ 36 Less goodwill to controlling interest (30.6) Noncontrolling interest's share $ 5.4 5. Example 3 (in millions): Acquisition Date Elimination Entries Pants pays $42.6 cash for 80% of the stock of Socks on January 1, 2010. Socks' book value is $10, consisting of $2.5 of stock and $7.5 of retained earnings. Previously unrecorded customer lists are valued at $5 with a 4-year life. Goodwill is $36, allocated $30.6 to controlling interest and $5.4 to noncontrolling interest.
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This note was uploaded on 02/22/2012 for the course ACCT 501 taught by Professor Ma during the Spring '11 term at South Carolina.

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LN -solution to Ch 4 in-class examples - Ch 4: Outside...

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