Ch 3: Subsequent to the Date of Acquisition (100% ownership)
ACCT 501, SP 12
Accounting for Parent to record Investment - Equity Method
Suppose Panda obtained 100% of Snail’s outstanding common stock on January 1, 2010, by
issuing 1,000,000 shares of $15 par value common stock. Panda’s shares had a $75 per share fair
value. Snail’s book value is $10 million.
Book and fair values are the same except for
equipment with fair value $15 million higher than book value. Snail has unreported identifiable
intangibles valued at $2 million. Assume that Panda uses the equity method to account for its
Information for on the date of acquisition:
Is it goodwill or gain on bargain purchase recognized from this
acquisition? What is the amount?
Snail’s fair value (Consideration transferred by Panda)
Book value of Snail
Excess of fair value over Snail's book value
Allocation of Differences between fair value and book value:
how should Panda record its acquisition of Snail’s common stock?
Dr: Investment in Snail
Cr: Common Stock