The balance sheets of Saba and Joseph Companies as of December 31, 20xx, appear on the next page.

Assume that Saba Company purchased 100 percent of Joseph's common stock for $700,000 immediately prior to December 31, 20xx. Also assume that $160,000 of the excess of cost over book value is attributable to the increased value of Joseph Company's property, plant, and equipment. The rest of the excess is considered by Saba Company to be goodwill.

Liabilities and Stockholders' Equity

Required
1. Prepare a work sheet for preparing a consolidated balance sheet as of the acquisition date.
2. User Insight: If you were reading Saba's consolidated balance sheet, what account would indicate that Saba paid more than book value for Joseph and where would you find it on the balance sheet? Also, would you expect the amount of this account to change from year-to year? What would cause it to change?

Transcribed Image Text:

Joseph Company Company Saba Assets Cash Accounts receivable Investment in Joseph Company Property, plant, and equipment (net) Total assets $120,000 80,000 200,000 60,000 700,000 200,000 360,000 $1,220,000 $500,000 Accounts payable Common stock, $20 par value Retained earnings Total liabilities and stockholders' equity $ 220,000 60,000 400,000 40,000 $500,000 800,000 200,000 $1,220,000