Exercise

Venus purchases 8,000 shares of Sundown for

$64/share.
Assets Liabilities & Equity
Cash $20,000 C/L $250,000
Inventory 280,000 C/S ($5 par) 50,000
PPE (net) 400,000 PIC in excess of par 130,000
Goodwill 100,000 R/E 370,000
Total $800,000 Total $800,000

Fair value of inventory $400,000

Fair value of PPE 500,000

Record the Investment

Investment in Sundown (8,000 x $64) 512,000
Cash 512,000

Value Analysis

Company Parent NCI

Value Analysis Schedule Implied Value Price (80%) Value (20%)

Company fair value $640,000 $512,000 $128,000

Fair value of net assets excluding G/W 670,000 536,000 134,000

*The NCI fair value must be equal to at least the fair value of the net assets excluding
goodwill. The fair value of the net assets excluding goodwill equals $4670,000. 20% of
$670,000 = 134,000.

Company Parent NCI

Value Analysis Schedule Implied Value Price (80%) Value (20%)
Company fair value $646,000 $512,000 $134,000

Fair value of net assets excluding G/W 670,000 536,000 134,000

Gain on acquisition $(24,000) $(24,000) $0

1
D&D Schedule: Date of Acquisition
Company Parent NCI
Value Analysis Schedule Implied Value Price (80%) Value (20%)
Company fair value $646,000 $512,000 $134,000
Less book value of interest acquired
Common stock $ 50,000
Paid in capital 130,000
Retained earnings 370,000
Total stockholders’ equity $550,000 $550,000 $550,000

Interest acquired – 100% 80% 20%

Book value $440,000 $110,000
Excess fair value over book value $96,000 $72,000 $24,000
Adjustment of identifiable accounts:
Inventory (400,000 – 280,000) $120,000 Debit
PPE (500,000 – 400,000) 100,000 Debit
Goodwill (0 – 100,000) (100,000) Credit
Gain on acquisition (24,000) Credit
4
Total $96,000

Elimination Entries
(1) C/S‐S (80% x 50,000) 40,000
PIC‐S (80% x 130,000) 104,000
R/E‐S (80% x 370,000) 296,000
Investment in Sundown 440,000
(2) Inventory 120,000
PPE 100,000
Goodwill 100,000
R/E‐V (Gain on acquisition) 24,000
Investment in Sundown 72,000
R/E‐S (NCI share of excess) 24,000