Conglomerate P Inc. purchased 80% shares of S Inc. for $800,000. As consideration P Inc. issued 10,000 shares new shares.

Professional fees included:

• Appraisal costs of S $50,000
• Legal fees to issue new shares of P for consideration $20,000
• Due diligence accounting work $40,000

1. Should these costs be added to the acquisition cost? Explain
2. Where would these costs appear in the Parent's books? Explain
3. If P intends to close a division of S within 6 months of acquisition and pay $50,000 severance pay to employees, should this cost be recognized as a liability at the time of acquisition? Would it affect the Goodwill calculation at the time of acquisition?

A Subsidiary has issued to public bonds with a total face-value of $200,000. The carrying value for the bonds at year end is $230,000. Parent purchased these bonds from market for $190,000.

1. Should a gain/loss be recognized on acquisition of these bonds in consolidated financial statement? Explain
2. What is the conceptually superior way to allocate any gain/loss to Subsidiary and/or Parent? Explain.
3. Assume Parent sold inventory to Subsidiary for $100,000 selling price. This sale resulted in a profit of $30,000 for Parent. Assume parents effective tax rate is 30%. Should the $30,000 "profit" be removed from the consolidated statement of earnings in the year? Explain in detail.

Conglomerate P Inc. purchased 76% of the voting shares of S Inc for $800,000 cash on January 1, Year 2.

The Balance Sheet of P Inc. & S Inc. for year 5 showed the following balances

P Inc. S Inc.

Common Share $241,499 $199,048

What is the amount for Common Shares on Consolidated Balance Sheet of P Inc. for Year 5?

Conglomerate P Inc. acquired 74% voting shares of S Inc. on January 1, Year 2.

During year 4, S sold inventory to P and earned a profit of $30,698. 77% of the merchandise had not been resold to outside parties in Year 4 and were eventually sold during January Year 5.

The Statement of Earnings of P Inc. & S Inc. for Year 5 showed the following balances

P Inc. S Inc.

COGS $178,260 $166,209

What is the amount for Cost of Goods Sold on Consolidated Statement of Earnings of P Inc. for year ended Year 5.

Conglomerate P Inc. purchased 69% of the voting shares of S Inc for $804,284 cash on January 1, Year 2. On that date, Ss Common Stock and Retained Earnings were valued at $ 100,000 and $236,169 respectively.

Ss fair values approximated its carrying values with the following exceptions:

• The building had a fair value which was $93,700 higher than its carrying value.
• S's bonds payable has a fair value $98,978 higher than its carrying value.

At the time of aquisition S's balance sheet had a goodwill of $20,000.

For Consolidation P Co. uses the Fair Value Enterprise method.

What is the Goodwill amount at the time of acquisition?