EXERCISE 5-1

Allocation of Cost LO 1 LO 3

On January 1, 2018, 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:

	Book Value	Fair Value
Marketable securities	$ 20,000	$ 45,000
Equipment (net)	120,000	140,000

Required:

1. Prepare a Computation and Allocation Schedule for the difference between book value of equity acquired and the value implied by the purchase price.
2. Determine the amounts at which the above assets (plus goodwill, if any) will appear on the consolidated balance sheet on January 1, 2018.