Allocation and Depreciation of Differences Between Implied and Book Values Acquisition

55
Allocation and Depreciation of

Differences Between Implied and
Book Values Acquisition
Advanced Accounting, Fifth Edition

Slide
5-1
Learning
Learning Objectives
Objectives
Slide
5-2
1.
Calculate the difference between implied and book values and allocate to the
subsidiarys assets and liabilities.
2.
Describe FASBs position on accounting for bargain acquisitions.
3.
Explain how goodwill is measured at the time of the acquisition.
4.
Describe how the allocation process differs if less than 100% of the subsidiary is
acquired.
5.
Record the entries needed on the parents books to account for the investment under
the three methods: the cost, the partial equity, and the complete equity methods.
6.
Prepare workpapers for the year of acquisition and the year(s) subsequent to the
acquisition, assuming that the parent accounts for the investment using the cost, the
partial equity, and the complete equity methods.
7.
Understand the allocation of the difference between implied and book values to longterm debt components.
8.
Explain how to allocate the difference between implied and book values when some
assets have fair values below book values.
9.
Distinguish between recording the subsidiary depreciable assets at net versus gross
fair values.
10.
Understand the concept of push down accounting.
Allocation
Allocation of
of Difference
Difference Between
Between Implied
Implied
and
and Book
Book Values:
Values: Acquisition
Acquisition Date
Date
When consolidated financial statements are prepared, asset
and liability values must be adjusted by allocating the
difference between implied and book values to specific

recorded or unrecorded tangible and intangible assets and
liabilities.
In the case of a wholly owned subsidiary, the implied value
of the subsidiary equals the acquisition price.
Slide
5-3
LO 1 Computation and Allocation of Difference.
Allocation
Allocation of
of Difference
Difference Between
Between Implied
Implied
and
and Book
Book Values:
Values: Acquisition
Acquisition Date
Date
Allocation of difference between implied and book values at
date of acquisition - wholly owned subsidiary.
Step 1: Difference used first to adjust the individual assets and
liabilities to their fair values on the date of acquisition.
Step 2: Any residual amount:
Implied value > aggregate fair values = goodwill.
Implied value < aggregate fair values = bargain. Bargain is

recognized as an ordinary gain.
Slide
5-4
LO 1 Computation and Allocation of Difference.
Allocation
Allocation of
of Difference
Difference Between
Between Implied
Implied
and
and Book
Book Values:
Values: Acquisition
Acquisition Date
Date
Bargain Rules under prior GAAP (before 2007 standard):
1.
Acquired assets, except investments accounted for by the equity

method, are recorded at fair market value.
2. Previously recorded goodwill is eliminated.

3. Long-lived assets (including in-process R&D and excluding long-term
investments) are recorded at fair market value minus an
adjustment for the bargain.
4. Extraordinary gain recorded if all long-lived assets are reduced to
zero.
Slide
5-5
Current GAAP eliminates these rules and requires an ordinary

gain to be recognized instead.
LO 2 FASBs position on accounting for bargain acquisitions.
Allocation
Allocation of
of Difference
Difference Between
Between Implied
Implied
and
and Book
Book Values:
Values: Acquisition
Acquisition Date
Date
Bargain Rules: When a bargain acquisition occurs, under

FASB ASC paragraph 805-30-25-2, the negative (or credit)
balance should be recognized as an ordinary gain in the year
of acquisition. No assets should be recorded below their
fair values.
Note: A true bargain is not likely to occur except in
situations where nonquantitative factors play a role.
Slide
5-6
Allocation
Allocation of
of Difference
Difference Between
Between Implied
Implied
and
and Book
Book Values:
Values: Acquisition
Acquisition Date
Date
Review Question
In the event of a bargain acquisition (after carefully
considering the fair valuation of all subsidiary assets and
liabilities) the FASB requires the following accounting:
a. an ordinary gain is reported in the financial
statements of the consolidated entity.
b. an ordinary loss is reported in the financial
statements of the consolidated entity.
c. negative goodwill is reported on the balance sheet.
d. assets are written down to zero value, if needed.
Slide
5-7
Allocation
Allocation of
of Difference
Difference
Case 1: Implied Value in Excess of Fair Value
E5-1: On January 1, 2010, Pam Company purchased an 85%
interest in Shaw Company for $540,000. On this date, Shaw
Company had common stock of $400,000 and retained earnings of
$140,000. An examination of Shaw Companys assets and liabilities
revealed that their book value was equal to their fair value except
for marketable securities and equipment:
Marketable securities
Equipment
Slide
5-8
Book Value
$ 20,000
120,000
Fair Value
$ 45,000
140,000
Difference
$ 25,000
20,000
LO 4 Allocation of difference in a partially owned subsidiary.
Allocation
Allocation of
of Difference
Difference
E5-1: A. Prepare a Computation and Allocation Schedule for the
difference between book value of equity acquired and the value
implied by the purchase price.
Purchase price and implied value

Book value of equity acquired:
Common stock
Retained earings
Total book value
Difference between implied and book value
Equipment
Balance
Record new goodwill
Balance
Slide
5-9
85%
Parent
Share
$ 540,000
340,000
119,000
459,000
81,000
(21,250)
(17,000)
42,750
(42,750)
$
0
15%
NCI
Share
$ 95,294
60,000
21,000
81,000
14,294
(3,750)
(3,000)
7,544
(7,544)
0
100%
Total
Value
$ 635,294
400,000
140,000
540,000
95,294
(25,000)
(20,000)
50,294
(50,294)
$
0
LO 4 CAD Schedule for less than wholly owned subsidiary.
Allocation
Allocation of
of Difference
Difference
E5-1 (variation): Prepare the worksheet entries to eliminate the
investment, recognize the noncontrolling interest, and to allocate
the difference between implied and book.
Common stock
Retained earnings
Difference between Implied and Book
Investment in Shaw
Noncontrolling interest in Equity
400,000
140,000
95,294
540,000
95,294
25,000
Equipment
20,000
Goodwill
50,294
Slide
5-10
95,294
Allocation
Allocation of
of Difference
Difference
Case 2: Acquisition Cost Less Than Fair Value
E5-1 (variation): On January 1, 2010, Pam Company purchased an
85% interest in Shaw Company for $470,000. On this date, Shaw
Equipment
Slide
5-11
Book Value
$ 20,000
120,000
Fair Value
$ 45,000
140,000
Difference
$ 25,000
20,000
Allocation
Allocation of
of Difference
Difference
E5-1 (variation): Prepare a
Computation and Allocation
Schedule.
Common stock
Retained earings
Total book value
Equipment
Balance (excess of FV over implied value)
Pam's gain
Increase noncontrolling interest to fair
value of assets
Total allocated gain
Balance
Slide
5-12
85%
Parent
Share
$ 470,000
340,000
119,000
459,000
11,000
(21,250)
(17,000)
(27,250)
27,250
15%
NCI
Share
$ 82,941
60,000
21,000
81,000
1,941
(3,750)
(3,000)
(4,809)
100%
Total
Value
$ 552,941
400,000
140,000
540,000
12,941
(25,000)
(20,000)
(32,059)
4,809
0
32,059
0
Allocation
Allocation of
of Difference
Difference
E5-1 (variation): Prepare the worksheet entries.
Common stock
400,000
Retained earnings
Investment in Shaw
140,000
12,941
470,000
Noncontrolling interest in Equity

Equipment
Gain on acquisition
Slide
5-13
82,941
25,000
20,000
27,250
Noncontrolling interest in equity
4,809
12,941
Effect
Effect of
of Allocation
Allocation and
and Depreciation
Depreciation of
of Differences
Differences on
on
Consolidated
Consolidated Net
Net Income:
Income: Year
Year Subsequent
Subsequent To
To Acquisition
Acquisition
When any portion of the difference between implied and
book values is allocated to depreciable and amortizable
assets, recorded income must be adjusted in determining
consolidated net income in current and future periods.
Adjustment is needed to reflect the difference between
the amount of amortization and/or depreciation recorded by
the subsidiary and the appropriate amount based on
consolidated carrying values.
Slide
5-14
Consolidated
Consolidated Statements
Statements Cost
Cost Method
Method
P5-4: On January 1, 2010, Porter Company purchased an 80%
interest in Salem Company for $850,000. At that time, Salem
Company had capital stock of $550,000 and retained earnings of
$80,000. Differences between the fair value and the book value of
the identifiable assets of Salem Company were as follows:
Equipment
Land
Inventory
Fair Value in Excess of Book Value

$ 130,000
65,000
40,000
The book values of all other assets and liabilities of Salem Company
were equal to their fair values on January 1, 2010. The equipment
had a remaining life of five years. The inventory was sold in 2010.
Slide
5-15
Year of
Acquisition
Consolidated
Statements Cost
Cost Method
Method
P5-4: Salem Companys net income and dividends declared in 2010
and 2011 were as follows: 2010 Net Income of $100,000; Dividends
Declared of $25,000; 2011 Net Income of $110,000; Dividends
Declared of $35,000.
Entries recorded on the books of Porter to reflect the acquisition of
Salem and the receipt of dividends for 2010 are as follows:
Investment in Salem
850,000
Cash
850,000
Cash
20,000
Dividend income ($25,000 x 80%)
Slide
5-16
Year of
Acquisition
20,000
Consolidated
Statements Cost
Cost Method
Method
P5-4: A. Prepare a Computation and Allocation Schedule

Common stock
Retained earings
Total book value
Equipment
Land
Inventory
Balance
Record new goodwill
Balance
Slide
5-17
Year of
Acquisition
80%
Parent
Share
$ 850,000
20%
NCI
Share
$ 212,500
100%
Total
Value
$ 1,062,500
440,000
64,000
504,000
346,000
(104,000)
(52,000)
(32,000)
158,000
(158,000)
$
-
110,000
16,000
126,000
86,500
(26,000)
(13,000)
(8,000)
39,500
(39,500)
$
-
550,000
80,000
630,000
432,500
(130,000)
(65,000)
(40,000)
197,500
(197,500)
$
-
Consolidated
Statements Cost
Cost Method
Method
P5-4: B. 1. Prepare the worksheet entries for Dec. 31, 2010.
20,000
Dividends declared
Beg. retained earnings - Salem
Slide
5-18
20,000
80,000
Common stock - Salem
550,000
Difference between Cost and Book
432,500
Investment in Salem
850,000
212,500
Year of
Acquisition
Consolidated
Statements Cost
Cost Method
Method
P5-4: B. 1. Prepare the worksheet entries for Dec. 31, 2010.
Cost of goods sold
40,000
Land
65,000
Plant and equipment
130,000
Goodwill
197,500
Difference between cost and book
Depreciation expense ($130,000/5)

Plant and equipment
Slide
5-19
Year of
Acquisition
432,500
26,000
26,000
Consolidated
Statements Cost
Cost Method
Method
P5-4: C. 1. Prepare the worksheet entries for Dec. 31, 2011.
Salem 2011 income
Salem 2011 dividends declared
Total
$100,000
- 25,000
75,000
Ownership percentage
80%
$ 60,000
Investment in Salem
60,000
Beg. Retained Earnings Porter Co.
60,000
To establish reciprocity/convert to equity as of 1/1/2011
Slide
5-20
Subsequent
Year
Consolidated
Statements Cost
Cost Method
Method
28,000
Dividends declared
Slide
5-21
28,000
155,000
550,000
432,500
Investment in Salem
910,000
227,500
Subsequent
Year
Consolidated
Statements Cost
Cost Method
Method
1/1 Retained Earnings Porter
32,000
Noncontrolling interest
Land
8,000
65,000
Plant and equipment

Goodwill
130,000
197,500

20,800
5,200
26,000
Plant and equipment

Slide
5-22
432,500
Subsequent
Year
52,000
Consolidated
Statements Cost
Cost Method
Method
P5-4: D. Prepare a consolidated financial statements
workpaper for the year ended December 31, 2012. Although
no goodwill impairment was reflected at the end of 2010 or
2011, the goodwill impairment test conducted at December 31,
2012 revealed implied goodwill from Salem to be only
$150,000. The impairment has not been recorded in the books
of the parent. (Hint: You can infer the method being used by
the parent from the information in its trial balance.)
Slide
5-23
Subsequent
Year
Consolidated
Statements Cost
Cost Method
Method
P5-4: D. 2012
Slide
5-24
Subsequent
Year
Year Subsequent of Acquisition
Consolidated
Statements Cost
Cost Method
Method
P5-4: D. 2012
Income Statement
Cash
Accounts receivable
Inventory
Investment in Sid
Difference (IV & BV)
Land
Plant and equipment
Goodwill
Total assets
Accounts payable
Notes payable
Common stock
Retained earnings
1/1 NCI in net assets
Porter
70,000
260,000
240,000
850,000
Eliminations
Debit
Credit
Salem
65,000
190,000
175,000
120,000
432,500
65,000
130,000
197,500
320,000
280,000
360,000
NCI
Consolidated
Balances
$
135,000
450,000
415,000
970,000
432,500
78,000
47,500
1,780,000
1,030,000
132,000
90,000
1,000,000
558,000
110,000
30,000
550,000
340,000
12/31 NCI in net asset

Total liab. & equity $
Slide
5-25
Year Subsequent of Acquisition
Subsequent
Year
550,000
425,100
8,000
10,400
168,000
242,500
7,300
224,100
231,400
1,780,000
1,030,000
1,938,500
$ 1,938,500
385,000
692,000
150,000
2,227,000
242,000
120,000
1,000,000
633,600
231,400
2,227,000
Consolidated
Statements Cost
Cost Method
Method
P5-4: D. Explanations of worksheet entries for Dec. 31, 2012.
Acquisition date retained earnings - Salem
$ 80,000
Retained earnings 1/1/12 - Salem
230,000
Increase
150,000
Ownership percentage
80%
$ 120,000
Investment in Salem
120,000
Beg. Retained Earnings Porter Co.
120,000
To establish reciprocity/convert to equity as of 1/1/2012
Slide
5-26
Subsequent
Year
Consolidated
Statements Cost
Cost Method
Method
P5-4 D. Worksheet
entries for Dec. 31, 2012.
W
48,000
Dividends declared
Slide
5-27
48,000
230,000
550,000
432,500
Investment in Salem
970,000
242,500
Subsequent
Year
Consolidated
Statements Cost
Cost Method
Method
P5-4 D. Worksheet
W
Land
8,000
65,000
Plant and equipment
130,000
Goodwill
197,500
Slide
5-28
32,000
Subsequent
Year
432,500
Consolidated
Statements Cost
Cost Method
Method
P5-4 D. Worksheet
W
1/1 Retained Earnings Porter (2 years)
Noncontrolling interest (2 years)
41,600
10,400
26,000
Plant and equipment
Impairment loss ($197,500 - $150,000)

Goodwill
78,000
47,500
47,500
To record goodwill impairment

Slide
5-29
Subsequent
Year
Consolidated
Statements Partial
Partial and
and
Complete
Complete Equity
Equity Methods
Methods
The equity methods (partial and complete) reflect
the effects of certain transactions more fully than
the cost method on the books of the parent.
However consolidated totals are the same regardless
of which method is used by the Parent company.
LO 5 Recording investment by Parent, partial equity method.

Slide
5-30
LO 5 Recording investment by Parent, complete equity method.
Additional
Additional Considerations
Considerations Relating
Relating to
to Treatment
Treatment of
of
Difference
Difference Between
Between Implied
Implied and
and Book
Book Values
Values
Allocation of Difference between Implied and Book

Values to Long-Term Debt
Notes payable, long-term debt, and other obligations of an
acquired company should be valued for consolidation purposes
at their fair values.
Fair
value is the price that would be paid to transfer a liability in an

orderly transaction between market participants at the measurement
date. A fair value measurement assumes:
The
liability is transferred to a market participant and
The
nonperformance risk relating to the liability is the same

before and after its transfer.
Slide
5-31
LO 7 Allocating difference to long-term debt.
Additional
Relating to
to Treatment
Treatment of
of
Difference
Difference Between
Between Implied
Implied and
and Book
Book Values
Values
Allocation of Difference between Implied and Book

Values to Long-Term Debt
To measure fair value, use valuation techniques that are
consistent with the market approach or income approach.
Quoted market prices are the best. If unavailable, then
managements best estimate based on
debt with similar characteristics or
valuation techniques such as present value.
Slide
5-32
LO 7 Allocating difference to long-term debt.
Additional
Relating to
to Treatment
Treatment of
of
Difference
Difference Between
Between Implied
Implied and
and Book
Book Values
Values
Allocating the Difference to Assets (Liabilities) with

Fair Values Less (Greater) Than Book Values
On the date of acquisition, sometimes the
fair value of an asset is less than the amount recorded on
the books of the subsidiary.
fair value of long-term debt may be greater rather than
less than its recorded value on the books of the
subsidiary.
Slide
5-33
LO 8 Allocating when the fair value is below book value.
Additional
Relating to
to Treatment
Treatment of
of
Difference
Difference Between
Between Implied
Implied and
and Book
Book Values
Values
Allocating the Difference to Assets (Liabilities) with

Fair Values Less (Greater) Than Book Values
E5-1 (Variation): On January 1, 2010, Pam Company purchased an
85% interest in Shaw Company for $540,000. On this date, Shaw
Equipment (5 year life)
Slide
5-34
Book Value
$ 20,000
120,000
Fair Value
$ 45,000
100,000
Difference
$ 25,000
(20,000)
Cost
Method
Allocation
Allocation of
of Difference
Difference
E5-1: A. Prepare a Computation and Allocation Schedule for

the difference between book value of equity acquired and the
value implied by the purchase price.

Common stock
Retained earings
Total book value
Equipment
Balance
Record new goodwill
Balance
Slide
5-35
85%
Parent
Share
$ 540,000
340,000
119,000
459,000
81,000
(21,250)
17,000
76,750
(76,750)
$
-
15%
NCI
Share
$ 95,294
60,000
21,000
81,000
14,294
(3,750)
3,000
13,544
(13,544)
-
100%
Total
Value
$ 635,294
400,000
140,000
540,000
95,294
(25,000)
20,000
90,294
(90,294)
$
-
Cost
Method
Allocation
Allocation of
of Difference
Difference
E5-1 (variation): At the end of the first year, the workpaper

entries are:
25,000
Goodwill
90,294

Equipment
Equipment,net
95,294
20,000
4,000
Depreciation expense ($20,000 / 5 years)
4,000
Note: the overvaluation of equipment will be amortized over

the life of the asset as a reduction of depreciation expense.
Slide
5-36
Cost
Method
Allocation
Allocation of
of Difference
Difference
E5-1 (variation): At the end of the second year, the workpaper

entries are:
25,000
Goodwill
90,294

Equipment
Equipment, net
8,000
Beg. retained earnings - Pam

Depreciation expense ($20,000 / 5 years)
Slide
5-37
95,294
20,000
3,400
600
4,000
Allocation
Allocation of
of Difference
Difference
Reporting Accumulated Depreciation in Consolidated
Financial Statements as a Separate Balance
E5-7: On January 1, 2011, Packard Company purchased an 80%
interest in Sage Company for $600,000. On this date Sage Company
had common stock of $150,000 and retained earnings of $400,000.
Sage Companys equipment on the date of Packard Companys
purchase had a book value of $400,000 and a fair value of
$600,000. All equipment had an estimated useful life of 10 years on
January 2, 2006.
Required: Prepare the December 31 consolidated financial
statements workpaper entries for 2011 and 2012, recording
accumulated depreciation as a separate balance.
Slide
5-38
LO 9 Depreciable assets at net and gross values.
Allocation
Allocation of
of Difference
Difference
E5-7: Prepare a Computation and Allocation Schedule.

Common stock
Retained earings
Total book value
Equipment
Balance
Slide
5-39
80%
Parent
Share
$ 600,000
120,000
320,000
440,000
160,000
(160,000)
$
-
20%
NCI
Share
$ 150,000
30,000
80,000
110,000
40,000
(40,000)
-
100%
Total
Value
$ 750,000
150,000
400,000
550,000
200,000
(200,000)
$
-
Allocation
Allocation of
of Difference
Difference
Cost & Partial

Equity Method
E5-7: Prepare the December 31 consolidated financial

statements workpaper entries for 2011 and 2012.
Equipment
400,000
Accumulated depreciation
200,000
200,000
Depreciation Expense ($200,000/5)

Accumulated Depreciation
Slide
5-40
40,000
40,000
Allocation
Allocation of
of Difference
Difference
Cost & Partial

Equity Method
E5-7: Prepare the December 31 consolidated financial

statements workpaper entries for 2011 and 2012.
Equipment
400,000
Accumulated depreciation
200,000
200,000
1/1 Retained Earnings -Packard Co.

1/1 Noncontrolling interest
Depreciation Expense ($200,000/5)
Accumulated Depreciation
32,000
8,000
40,000
80,000
* Complete equity method: debit to 1/1 Retained Earnings Packard Co.

would be replaced with a debit to Investment in Sage Company
Slide
5-41
Allocation
Allocation of
of Difference
Difference
Disposal of Depreciable Assets by Subsidiary
In the year of sale, any gain or loss recognized by the subsidiary on
the disposal of an asset to which any of the difference between
implied and book value has been allocated must be adjusted in the
consolidated statements workpaper.
Depreciable Assets Used in Manufacturing

When the difference between implied and book values is allocated
to depreciable assets used in manufacturing, workpaper entries may
be more complex because the current and previous years additional
depreciation may need to be allocated among work in process,
finished goods, and cost of goods sold.
Slide
5-42
Push
Push Down
Down Accounting
Accounting
Push down accounting is the establishment of a new
accounting and reporting basis for a subsidiary company in its
separate financial statements based on the purchase price
paid by the parent to acquire the controlling interest.
The valuation implied by the price of the stock to the parent
company is pushed down to the subsidiary and used to
restate its assets (including goodwill) and liabilities in its
separate financial statements.
Slide
5-43
LO 10 Push down of accounting to the subsidiarys books.
Push
Push Down
Down Accounting
Accounting
Arguments for and against Push Down Accounting
Three important factors that should be considered in
determining the appropriateness of push down accounting are:
1.
Whether the subsidiary has outstanding debt held by the

public.
2. Whether the subsidiary has outstanding a senior class of

capital stock not acquired by the parent company.
3. The level at which a major change in ownership of an entity
should be deemed to have occurred, for example, 100%, 90%,
51%.
Slide
5-44
Push
Push Down
Down Accounting
Accounting
Status of Push Down Accounting
As a general rule, the SEC requires push down accounting when
the ownership change is greater than 95% and objects to push
down accounting when the ownership change is less than 80%.
In addition, the SEC staff expresses the view that the existence of
outstanding public debt, preferred stock, or a significant
noncontrolling interest in a subsidiary might impact the parent
companys ability to control the form of ownership. In these
circumstances, push down accounting, though not required, is an
acceptable accounting method.
Slide
5-45
Copyright
Copyright
Copyright 2012 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act
without the express written permission of the copyright owner
is unlawful. Request for further information should be
addressed to the Permissions Department, John Wiley & Sons,
Inc. The purchaser may make back-up copies for his/her own
use only and not for distribution or resale. The Publisher
assumes no responsibility for errors, omissions, or damages,
caused by the use of these programs or from the use of the
information contained herein.
Slide
5-46

Allocation and Depreciation of Differences Between Implied and Book Values Acquisition

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Allocation and Depreciation of Differences Between Implied and Book Values Acquisition

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Allocation and Depreciation of

Advanced Accounting, Fifth Edition

Describe FASBs position on accounting for bargain acquisitions.

Explain how goodwill is measured at the time of the acquisition.

Understand the concept of push down accounting.

difference between implied and book values to specific

LO 1 Computation and Allocation of Difference.

Implied value > aggregate fair values = goodwill.

Implied value < aggregate fair values = bargain. Bargain is

LO 1 Computation and Allocation of Difference.

Acquired assets, except investments accounted for by the equity

2. Previously recorded goodwill is eliminated.

Current GAAP eliminates these rules and requires an ordinary

Bargain Rules: When a bargain acquisition occurs, under

LO 2 FASBs position on accounting for bargain acquisitions.

LO 2 FASBs position on accounting for bargain acquisitions.

LO 4 Allocation of difference in a partially owned subsidiary.

Purchase price and implied value

LO 4 CAD Schedule for less than wholly owned subsidiary.

LO 4 Allocation of difference in a partially owned subsidiary.

LO 4 Allocation of difference in a partially owned subsidiary.

LO 4 Allocation of difference in a partially owned subsidiary.

Noncontrolling interest in Equity

Noncontrolling interest in equity

Difference between Implied and Book

LO 4 Allocation of difference in a partially owned subsidiary.

LO 4 Allocation of difference in a partially owned subsidiary.

Fair Value in Excess of Book Value

LO 4 Allocation of difference in a partially owned subsidiary.

Dividend income ($25,000 x 80%)

LO 4 Allocation of difference in a partially owned subsidiary.

Purchase price and implied value

LO 4 Allocation of difference in a partially owned subsidiary.

Common stock - Salem

Difference between Cost and Book

Noncontrolling interest in equity

LO 4 Allocation of difference in a partially owned subsidiary.

Plant and equipment

Difference between cost and book

Depreciation expense ($130,000/5)

LO 4 Allocation of difference in a partially owned subsidiary.

Beg. Retained Earnings Porter Co.

To establish reciprocity/convert to equity as of 1/1/2011

LO 4 Allocation of difference in a partially owned subsidiary.

Beg. retained earnings - Salem

Common stock - Salem

Difference between Cost and Book

Noncontrolling interest in equity

LO 4 Allocation of difference in a partially owned subsidiary.

Plant and equipment

Difference between cost and book

Depreciation expense ($130,000/5)

Plant and equipment

LO 4 Allocation of difference in a partially owned subsidiary.

LO 4 Allocation of difference in a partially owned subsidiary.

Year Subsequent of Acquisition

LO 4 Allocation of difference in a partially owned subsidiary.

12/31 NCI in net asset