Question

On January 1, 2016, Parflex Corporation exchanged $344,000 cash for 90 percent of Eagle Corporation’s outstanding voting stock. Eagle’s acquisition date balance sheet follows:

Cash and receivables	$	15,000		Liabilities	$	76,000
Inventory		35,000		Common stock		150,000
Property and equipment (net)		350,000		Retained earnings		174,000
	$	400,000			$	400,000

On January 1, 2016, Parflex prepared the following fair-value allocation schedule:

Consideration transferred by Parflex	$	344,000
10% noncontrolling interest fair value		36,000
Fair value of Eagle		380,000
Book value of Eagle		324,000
Excess fair over book value		56,000
to equipment (undervalued, remaining life of 9 years)		18,000
to goodwill (indefinite life)	$	38,000

The companies’ financial statements for the year ending December 31, 2018, follow:

	Parflex				Eagle
Sales	$	(862,000	)		$	(366,000	)
Cost of goods sold		515,000				209,000
Depreciation expense		191,200				67,000
Equity in Eagle's earnings		(79,200	)			0
Separate company net income	$	(235,000	)		$	(90,000	)
Retained earnings 1/1	$	(500,000	)		$	(278,000	)
Net income		(235,000	)			(90,000	)
Dividends declared		130,000				27,000
Retained earnings 12/31	$	(605,000	)		$	(341,000	)
Cash and receivables	$	135,000			$	82,000
Inventory		255,000				136,000
Investment in Eagle		488,900				0
Property and equipment (net)		964,000				328,000
Total assets	$	1,842,900			$	546,000
Liabilities	$	(722,900	)		$	(55,000	)
Common stock—Parflex		(515,000	)			0
Common stock—Eagle		0				(150,000	)
Retained earnings 12/31		(605,000	)			(341,000	)
Total liabilities and owners' equity	$	(1,842,900	)		$	(546,000	)

At year-end, there were no intra-entity receivables or payables.

1. already completed

2. Show how Parflex determined its “Investment in Eagle” account balance.

2.

Show how Parflex determined its “Investment in Eagle” account balance.

	Initial value Change in Eagle’s RE Excess fair value amortization Equity income 2018 Eagle 2018 dividends Investment in Eagle 12/31/18 $0

Answer 1

Answer :

Investment in Eagle can be calculated as follows

Investment in E
Initial value	$344,000
Change in E's Re *90%
($341,000 - $174,000)*90%	150,300
Excess amortization (3 years)*90%	-5,400
Investment in E 12/31/18	$488,900