Suppose that Purchasing Company acquires 90% of Selling Company by issuing stock valued at $800,00O. The only difference between book value and fair value relates to depreciable plant and equipment. Plant and equipment has a market value of $400,000 and a book value of $250,000. All other book values approximate market values. Assume that the combination qualifies as a nontaxable exchange. On the date of acquisition, Selling Company's book value of equity is $600,000, which includes $150,000 of common stock and $450,000 of retained earnings. Assume a 30% tax rate. Consider the following Computation and Allocation Schedule with and without considering deferred taxes. (1) Common Stock-Selling Company 150,000 Retained Earnings-Selling Company Difference between Implied and Book Values Investment in S Company Noncontrolling Interest in Equity 450,000 288,889 800,000 88,889 Without Deferred Taxes With Deferred Taxes (2 Plant and Equipment 150,000 150,000 Goodwill 138,889 183,889 Deferred tax liability (Long-term) 45,000 Difference between 288,889 288,889 Implied and Book Values Required: 1. Post to the general ledger of the above-mentioned accounts.

Suppose that Purchasing Company acquires 90% of Selling Company by issuing stock valued at $800,00O. The only difference between book value and fair value relates to depreciable plant and equipment. Plant and equipment has a market value of $400,000 and a book value of $250,000. All other book values approximate market values. Assume that the combination qualifies as a nontaxable exchange. On the date of acquisition, Selling Company's book value of equity is $600,000, which includes $150,000 of common stock and $450,000 of retained earnings. Assume a 30% tax rate. Consider the following Computation and Allocation Schedule with and without considering deferred taxes. (1) Common Stock-Selling Company 150,000 Retained Earnings-Selling Company Difference between Implied and Book Values Investment in S Company Noncontrolling Interest in Equity 450,000 288,889 800,000 88,889 Without Deferred Taxes With Deferred Taxes (2 Plant and Equipment 150,000 150,000 Goodwill 138,889 183,889 Deferred tax liability (Long-term) 45,000 Difference between 288,889 288,889 Implied and Book Values Required: 1. Post to the general ledger of the above-mentioned accounts.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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