Question 1: Eliminating Entries with Negative Goodwill
Snow Corporation purchased all of Cogner Corporation’s voting shares on January 1, 2002, for $365,000. At that time Cogner reported common stock outstanding of $80,000 and retained earnings of $130,000. The book value of Cogner’s assets and liabilities approximated their fair vales, except for land, which had a book value of $80,000 and a fair value of $100,000, and buildings, which had a book value of $220,000 and a fair value of $400,000. Land and buildings are the only noncurrent assets that Cogner holds.
Required to do:
a. Compute the amount of negative goodwill at the date of acquisition.
b. Give the eliminating entry or entries required immediately following the acquisition to prepare a consolidated balance sheet.
Question 2: Push-Down Accounting
Jefferson Company purchased all of Louis Corporation’s common shares on January 2, 2003, for $789,000. At the date of combination, Louos’s balance sheet appeared as follow:
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Assets
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Liabilities
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Cash and Receivables
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34,000
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Current payables
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25,000
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Inventory
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165,000
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Notes Payables
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100,000
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Land
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60,000
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Stockholder's Equity
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Buildings (net)
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250,000
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Common Stock
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200,000
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Equipment (net)
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320,000
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Additional Capital
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425,000
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Retained Earnings
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79,000
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Total
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829,000
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Total
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829,000
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The fair values of all Louis’s assets and liabilities were equal to their book values except for its fixed assets. Louis’s land had a value of $75,000; the buildings, a fair value of $300,000; and the equipment, a fair value of $340,000.
Jefferson Company decided to employ push-down accounting for the acquisition of Louis Corporation. Subsequent to the combination, Louis continued to operate as a separate company.
Required to do:
a. Record the purchase of Louis’s stock on Jefferson’s books.
b. Present any entries that would be made on Louis’s books related to the business combination, assuming push-down accounting is used.
c. Present, general journal form, all elimination entries that would appear in a consolidation work-paper for Jefferson and its subsidiary prepared immediately following the combination.