Module 2 – Handout 2

100% Acquisition: Price = FMV

Example
Assume that Company P acquired 100% of the
stock of Company S for $500,000.
Company S Balance Sheet
Assets Liabilities & Equity
Accounts receivable $200,000 Current liabilities $100,000
Inventory 100,000 Common stock 200,000
Equipment (net) 300,000 Retained earnings 300,000
Total assets $600,000 Total liabilities & equity $600,000

Fair market value of S’s identifiable net assets

equaled book value.
2

Record Investment
Investment in S 500,000
Cash 500,000

1
 Value Analysis
• Designed to compare the fair value of the
company acquired with the fair value of
the net assets.
Company Parent NCI
Value Analysis Schedule Implied Value Price (100%) Value (0%)

Company fair value $500,000 $500,000 NA

Fair value of net assets excluding G/W 500,000 500,000

Goodwill/(Gain on acquisition) $ 0 $ 0

Determination and Distribution of

Excess Schedule
Company Parent NCI
Implied Value Price (100%) Value (0%)

Fair value of subsidiary $500,000 $500,000 NA

Less book value of interest acquired
Common stock $200,000 $200,000
Retained earnings 300,000 300,000
Total stockholders’ equity $500,000 $500,000
Interest acquired – 100% 100%
Book value $500,000
Excess fair value over book value $ 0

Elimination Entries
Parent’s investment in subsidiary account is
eliminated against the equity accounts of the
subsidiary.
(1) Common stock‐S 200,000
Retained earnings‐S 300,000
Investment in S 500,000

2
 Company P’s Balance Sheet
Assume that immediately after the acquisition,
Company P had the following balance sheet:
Company P Balance Sheet
Assets Liabilities & Equity
Cash $300,000 Current liabilities $150,000
Accounts receivable 300,000 Bonds payable 500,000
Inventory 100,000 Common stock 100,000
Investment in S 500,000 Retained earnings 600,000
Equipment (net) 150,000
Total assets $1,350,000 $1,350,000

Worksheet
P S DR CR Con B/S
Cash 300,000 300,000
A/R 300,000 200,000 500,000
Inventory 100,000 100,000 200,000
Invest in S 500,000 (1) 500,000 0
Equip (net) 150,000 300,000 450,000
C/L (150,000) (100,000) (250,000)
B/P (500,000) (500,000)
C/S‐P (100,000) (100,000)
C/S‐S (200,000) (1) 200,000 0
R/E‐P (600,000) (600,000)
R/E‐S (300,000) (1) 300,000 0
Total 0 0 500,000 500,000 0
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What’s Next
• Topic 3 – 100% acquisition: Price > FMV
• Topic 4 – 100% acquisition: Price < FMV
• Topic 5 – Less than 100% acquisition