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    1) Pop's shares were purchased for $960,000. The fair value of Son's identifiable net assets was $2,000,000. 40% of the net assets' fair value was $800,000. The excess of $160,000 was allocated proportionately to inventories, land, and equipment. 2) Pop's shares were purchased for $640,000. The fair value of Son's net assets was still $2,000,000 but the market price of Pop's shares declined. 40% of the net assets' book value was $800,000 but fair value was only $640,000, resulting in a $160,000 bargain purchase gain.

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    1) Pop's shares were purchased for $960,000. The fair value of Son's identifiable net assets was $2,000,000. 40% of the net assets' fair value was $800,000. The excess of $160,000 was allocated proportionately to inventories, land, and equipment. 2) Pop's shares were purchased for $640,000. The fair value of Son's net assets was still $2,000,000 but the market price of Pop's shares declined. 40% of the net assets' book value was $800,000 but fair value was only $640,000, resulting in a $160,000 bargain purchase gain.

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    19 views3 pages

    Hbjhjhjhujuhj

    Uploaded by

    njkjh
    1) Pop's shares were purchased for $960,000. The fair value of Son's identifiable net assets was $2,000,000. 40% of the net assets' fair value was $800,000. The excess of $160,000 was allocated proportionately to inventories, land, and equipment. 2) Pop's shares were purchased for $640,000. The fair value of Son's net assets was still $2,000,000 but the market price of Pop's shares declined. 40% of the net assets' book value was $800,000 but fair value was only $640,000, resulting in a $160,000 bargain purchase gain.

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    © All Rights Reserved
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    Solution:

    1)

    Market price for Pop’s shares @24

    Cost of investment in Son [40,000 shares * $960,000


    $24]

    The $80,000 direct costs must be expensed.


    BV acquired ($2,000,000 net assets * 40%) $800,000

    Excess FV over BV $160,000

    Allocation of excess

    FV- BV % acquired Allocation

    Inventories $200,000 40% $80,000

    Land $400,000 40% $160,000

    Buildings (Net) - $400,000 40% - $160,000

    Equipment (Net) $200,000 40% $80,000

      Assigned to identifiable net assets $160,000

    Remainder assigned to goodwill $0

    Total allocation $160,000

    2)

    Market price  for Pop’s shares @$16

    Cost of investment in Son $640,000

    (40,000 shares * $16) Other direct costs = $0

    BV acquired ($2,000,000 net assets * 40%) $800,000

    Excess BV over FV - $160,000


    Excess allocated to

    FV- BV % acquired Allocation

    Inventories $200,000 40% $80,000

    Land $400,000 40% $160,000

    Buildings (Net) - $400,000 40% - $160,000

    Equipment (Net) $200,000 40% $80,000

    Bargain purchase gain - $320,000

    $160,000

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