Problem 3

On December 1, 2020 P and S Corporation come to an agreement where P will acquire 40% of the ordinary shares of S from its existing stockholders by issuing 400,000 ordinary shares with P1 par. The shares have a fair value of 1.20 per share on the date of agreement. Before this agreement, on November 30, P has an existing 40% investment in the ordinary shares of S. P accounted the existing investment as an investment in associate and has a book value and fair value of 400,000 and 500,000 on acquisition date, respectively.

On December 31, 2020, P Corporation issued the 400,000 ordinary shares to S corporation. On such date, the shares have a fair value of 1.75 per share.

P corporation paid 41,145 in stock issuance costs.

Assume that the fair value of non-controlling interest is 400000

P Corporation's December 31, 2020 statement of financial position presents the following:

Assets

Cash

2,457,813

Accounts Receivable

999,014

Inventory

913,131

Investment in Associate

400,000

Land

3,214,784

Building (net)

2,333,333

Total Assets

10,318,075

Liabilities and Equity

Accounts Payable

1,999,999

Bonds Payable

1,478,632

Common stock (P1 par)

4,200,698

Additional paid in capital

1,154,008

Retained earnings

1,484,738

Total Liabilities and Equity

10,318,075

The assets and liabilities of P at December 31, 2020 are properly valued, except:

1. Inventory should have a fair value of 1,100,000

2. Land should be fairly valued at 2,500,000

S Corporation's December 31, 2020 statement of financial position presents the following:

Assets

Cash

88,888

Accounts Receivable

248,888

Inventory

188,888

Trademark

48,888

Land

488,888

Building (net)

348,888

Total Assets

1,413,328

Liabilities and Equity

Accounts Payable

88,888

Bonds Payable

398,888

Common stock (P1 par)

488,888

Additional paid in capital

248,888

Retained earnings

187,776

Total Liabilities and Equity

1,413,328

The assets and liabilities of S at December 31, 2020 are properly valued, except:

1. Inventory should have a fair value of 149,999

2. An unrecognized intangible asset (franchise) fairly valued at 39,999

3. Land should be fairly valued at 599,999

Assume P used cost method to account the subsidiary, and accounts NCI at Fair Value

Required:

Record the transactions to account the investment

Prepare working paper elimination entries to prepare the consolidated financial statements

Prepare the consolidated statement of financial position at the date of acquisition

please see attached picture below

2. Land should be fairly valued at 2,500,000 Problem 3 On December 1, 2020 P and S Corporation come to an agreement where P will acquire 40% S Corporation's December 31, 2020 statement of financial position of the ordinary shares of S from its existing stockholders by issuing 400,000 ordinary shares presents the following with P1 par. The shares have a fair value of 1.20 per share on the date of agreement Before this agreement, on November 30, P has an existing 40% investment in the ordinary shares of Assets S. P accounted the existing investment as an investment in associate and has a book value and fair value of 400,000 and 500,000 on acquisition date, respectively. Cash 28,888 On December 31, 2020, P Corporation issued the 400,000 ordinary shares to S corporation. Accounts Receivable 248,838 On such date, the shares have a fair value of 1.75 per share. Inventory 188,888 P corporation paid 41,145 in stock issuance costs. Trademark 48.888 Assume that the fair value of non-controlling interest is 400000 Land 488,888 P Corporation's December 31, 2020 statement of financial position presents the following Building (net) 348,888 Assets Total Assets 1.413,328 Cash 2,457,813 Liabilities and Equity Accounts Receivable 890,014 Accounts Payable 38,888 Inventory 013,131 Bonds Payable 398,888 Investment in Associate 400,000 3,214,784 Common stock (P1 par) 488,888 Land Additional paid in capital 248,888 Building (ne 2.333,333 Total Assets 10,318,075 Retained earnings 187,776 Liabilities and Equity Total Liabilities and Equity 1.413,328 Accounts Payable 686'656'L Bonds Payable 1.478,632 The assets and liabilities of S at December 31, 2020 are properly valued. except: Common stock (P1 par) 4,200,698 1. Inventory should have a fair value of 149,989 2. An unrecognized intangible asset (franchise) fairly valued at 39.909 Additional paid in capital 1.154,008 3. Land should be fairly valued at 509,909 Retained earnings 1,484,738 Assume P used cost method to account the subsidiary, and accounts NCI Total Liabilities and Equity 10.318,075 at Fair Value Required: The assets and liabilities of P at December 31, 2020 are properly valued, Record the transactions to account the investment except: Prepare working paper elimination entries to prepare the consolidated 1. Inventory should have a fair value of 1,100,000 financial statements