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S Corporation Investment Accounting Guide

P Corporation acquired S Corporation for $1,260,000. The book value of S Corporation's net assets was $1,155,000 and the fair value was $1,655,000. This resulted in recognized goodwill of $105,000. Working entries were made to eliminate S Corporation's equity accounts and adjust assets and liabilities to fair value in consolidation. The consolidated statement of financial position combines the assets and liabilities of both companies, including the recognized goodwill from the acquisition.

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117 views2 pages

S Corporation Investment Accounting Guide

P Corporation acquired S Corporation for $1,260,000. The book value of S Corporation's net assets was $1,155,000 and the fair value was $1,655,000. This resulted in recognized goodwill of $105,000. Working entries were made to eliminate S Corporation's equity accounts and adjust assets and liabilities to fair value in consolidation. The consolidated statement of financial position combines the assets and liabilities of both companies, including the recognized goodwill from the acquisition.

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Artisan
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PROBLEM 1

1. Record the transactions to account the investment.

P Corporation’s Books Debit Credit

Investment in subsidiary 1,260,000


Common Stock 900,000
Additional paid in capital 360,000

Additional paid in capital 35,000


Cash 35,000
To record stock issuance costs

Comparison of Book Value and Acquisition date fair value of S Corporation:

Assets Book Value Acquisition date Fair Values


Cash 150,000 150,000
Accounts Receivable 250,000 250,000
Inventory 189,000 130,000
Trademark 50,000 50,000
Franchise - 60,000
Land 550,000 665,000
Building (net) 350,000 350,000
Total Assets 1,539,000 1,655,000

Liabilities and Equity


Accounts Payable 100,000 100,000
Bonds Payable 400,000 400,000

Common Stock (P1 par) 500,000 -


Additional paid in capital 200,000 -
Retained earnings 339,000 -

Total Net Assets 1,155,000

Goodwill or gain from bargain purchase

Total Consideration transferred 1,260,000


Less: Acquisition date fair value of net assets acquired 1,155,000
Goodwill (gain on bargain purchase) 105,000
2. Prepare working paper elimination entries to prepare the consolidated
financial statements

Debit Credit
Common Stock 500,000
Additional paid in capital 200,000
Retained earnings 339,000
Franchise 60,000
Land 115,000
Goodwill 105,000
Inventory 59,000
Investment in subsidiary 1,260,000
To eliminate the investment in subsidiary account

3. Prepare the consolidated statement of financial position at the date of


acquisition.

After eliminating the investment account, the consolidated statement of


financial position on December 31, 2020, at the date of acquisition:

Assets
Cash 2,583,000
Accounts Receivable 1,793,330
Inventory 1,673,315
Goodwill 105,000
Trademark 50,000
Franchise 60,000
Land 4,205,000
Building (net) 2,950,000
Total Assets 13,419,645

Liabilities and Equity


Accounts Payable 2,100,000
Bonds Payable 2,400,000

Common Stock (P1 par) 5,400,000


Additional paid in capital 1,525,000
Retained earnings 1,994,645

Total Liabilities and Equity 13,419,645

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