Problem
Recording the purchase with goodwill. Woolco, Inc., purchased all the outstanding stock of Paint, Inc., for $980,000. Woolco also paid $10,000 in direct acquisition costs. Jut before the investment, the two companies had the following balance sheets:
Assets Woolco, Inc. Paint, Inc.
Accounts receivable $900,000 $500,000
Inventory 600,000 200,000
Depreciable fixed assets (net) 1,500,000 600,000
Total assets $3,000,000 $1,300,000
Liabilities and Equity
Current Liabilities $950,000 $400,000
Bonds Payable 500,000 200,000
Common stock ($10 par) 400,000 300,000
Paid-in capital in excess of par 500,000 380,000
Retained earnings 650,000 20,000
Total liabilities and equity $3,000,000 $1,300,000
Appraisals for the assets of Paint, Inc., indicate that fair values differ from recorded book values for the inventory and for the depreciable fixed assets, which have fair values of $250,000 and $750,000, respectively.
Instructions:
1. Prepare the entries to record the purchase of the Pain, Inc., common stock and payment of acquisition costs.
2. Prepare the value analysis and the determination and distribution of excess schedule for the investment in Paint, Inc.
3. Prepare the elimination entries that would be made on a consolidated worksheet.