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P Corporation acquired 100 percent of S Company’s assets on
January 1, 2011, by issuing 1,250,000 shares of its $1 par
common stock. The common stock issue in the acquisition had a
market value of $80.80 per share. Balance sheets of both
companies immediately prior to the acquisition are shown below.
P Corporation
Balance Sheet
December 31, 2010
Assets
Cash $120,000,000
Accounts receivable $350,000,000
Inventories $135,000,000
Land $15,000,000
Plant, property, and equipment $80,000,000
Less: Accumulated depreciation ($42,000,000)
Total assets $658,000,000
Liabilities and Shareholders’ Equity
Accounts payable $215,000,000
Notes payable $85,000,000
Common stock $100,000,000
Paid-in capital in excess of par $157,000,000
Retained earnings $101,000,000
Total liabilities and SE $658,000,000
S Company
Balance Sheet
December 31, 2010
Assets
Cash $50,000,000
Accounts receivable $37,000,000
Inventories $18,000,000
Land $10,000,000
Plant, property, and equipment $35,000,000
Less: Accumulated depreciation ($21,000,000)
Total assets $129,000,000
Liabilities and Shareholders’ Equity
Accounts payable $32,000,000
Notes payable $8,000,000
Common stock $10,000,000
Paid-in capital in excess of par $28,000,000
Retained earnings $51,000,000
Total liabilities and SE $129,000,000
The difference between the book value and fair value of S
Company’s net assets are as follows:
Balance Sheet Account
Book Value
Fair Value
Cash
$50,000,000
$50
Accounts receivable
$37,000,000
$37
Inventories
$18,000,000
$20
Land
$10,000,000
$12
Plant, property, and equipment, net of depreciation
$14,000,000
$15
Accounts payable
($32,000,000)
($32)
Notes payable
($8,000,000)
($8)
Total Net Assets
$89,000,000
$94
1. Assume that P Corporation acquires 75 percent of S Company’s common stock on January 1,

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2011. To effect the transaction, P Corporation issues 937,500 shares of its $1 par common stock.
Assume the common stock still has a market value of $80.80 per share.
a) Prepare the journal entries required under GAAP for P Corporation to record the acquisition of
the non-controlling interest in S Company on January 1, 2011.
b) Prepare a Distribution of Excess Schedule to allocate excess amounts to the parent and non-
controlling interest.
c) Prepare the appropriate journal entry to eliminate the investment account and the equity
accounts of S Company.
d) Prepare the journal entry necessary to distribute the excess market over book value to the
Investment in S account and to the NCI.
2. Assume that the Inventory carried on S Company’s balance sheet is expected to have a life of
one year. The equipment has a life of 10 years.
a. Prepare the necessary journal entry or entries necessary to amortize the adjustments arising
from the difference between the book value and the price paid for P Corporation’s investment in
S Company on December 31, 2011.
b. Prepare the necessary journal entry or entries necessary to amortize the adjustments arising
from the difference between the book value and the price paid for P Corporation’s investment in
S Company on December 31, 2012.

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