Question
Prime Company acquired 100.00% of the common stock of Second Company on January 1, year one, for $600,000 On that date, Second had the following
Prime Company acquired 100.00% of the common stock of Second Company on January 1, year one, for $600,000
On that date, Second had the following trial balance:
account debit credit
Additional paid in capital 100,000
Building (12-year life) 250,000
Common stock 170,000
Current assets 170,000
Equipment (6-yr life) 160,000
Land 110,000
Liabilities (due in 4 years) 300,000
Retained earnings 1/year 1 120,000
Totals 690,000 690,000
During year one, Second reported net income of $60,000
During year one, Second paid dividends of $30,000
During year two, Second reported net income of $80,000
During year two, Second paid dividends of $40,000
On January 1, year one, fair values were:
Land $122,000
Building $274,000
Equipment $184,000
There was no impairment of any goodwill arising from the acquisition.
1. Please indicate clearly which method you choose for Prime to use to account for its acquisition of Second Company.
2. Use the data for the Prime Company acquisition of the Second Company to prepare the consolidation worksheet entries for the December 31, year one, worksheet.
3. Use the data for the Prime Company acquisition of the Second Company to prepare the consolidation worksheet entries for the December 31, year two, worksheet.
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