Question

Answers given. Can you please explain the calculations.

The following information applies:

Huey Company acquires 100% of the stock of Solar Corporation on January 1, 2019, for $2,400,000 cash. As of that date Solar had the following account balances:

	Book Value	Fair value
Cash	$300,000	$300,000
Accounts receivable	325,000	325,000
Inventory	350,000	$400,000
Building-net (10 year life)	1,000,000	900,000
Equipment-net (5 year life)	300,000	400,000
Land	600,000	900,000
Accounts Payable	125,000	125,000
Bonds Payable (Face amount $1,000,000; due 12/31/2023)	2,000,000	2,050,000
Common stock	700,000
Additional paid-in capital	250,000
Retained earnings	880,000

In 2019 and 2020, Solar had net income of $250,000 and $240,000, respectively. In addition, Solar paid dividends of $16,000 in both years. Inventory is assumed to be sold in 2019. Assume straight line amortization/ depreciation for assets and bonds payable.

25.      What was the amount of excess of acquisition price over book value of Solar's net assets?

d. $   570,000

26.      What is the amount of goodwill at date of acquisition?

b. $270,000

27.      What amount of inventory would be added to the parent's inventory balance to get consolidated inventory at date of acquisition?

c. $400,000

29.      What amount of Solar’s equipment would be included on the consolidated balance sheet at December 31, 2019?

d. $380,000

Answer 1

25. The below table explains how amount of excess of acquisition price over book value of Solar's net assets:

Total net assets is sum total of Common stock, Additional paid-in capital, Retained earnings.

Particulars	Book Value
Total consideration paid-A	2,400,000
Common stock	700,000
Additional paid-in capital	250,000
Retained earnings	880,000
Total nett assets-B	1,830,000
excess of acquisition price over book value of Solar's net assets (A-B)	570,000

26.The below table explains the good will computation

Particulars	Book Value	Fair value	Amount
excess of acquisition price over book value of Solar's net assets as per above table			570,000	A
Adjustment for difference in fairvalue minus book value
Inventory	350,000	$400,000	$50,000
Building-net (10 year life)	1,000,000	900,000	($100,000)
Equipment-net (5 year life)	300,000	400,000	$100,000
Land	600,000	900,000	$300,000
Bonds Payable (Face amount $1,000,000; due 12/31/2023) (as this is a liability we take book value -fair value for good will comp)	2,000,000	2,050,000	-50,000
			$300,000	B
Good will (A-B)			270,000

27. 400,000 will be the value of inventory as the company will consolidate all the balances pertaining to solar corporation at fair values.

28. Fair value of solars equipment on date of acquisition January 1, 2019 is 400,000

Useful life is mentioned as 5 years

Depreciation for 1 year will be = fair value on date of acuisition / useful life= 400,000/5=80,000

Solars equipment in consolidated books will be fair value - depreciation for 1 year =400,000-80,000= 320,000

Answer 2

what would be buildings on 31 dec?