Computations under parent company and entity theories fair value book value differentials On

Computations under parent-company and entity theories (fair value/book value differentials)

On January 1, 2017, Pam Corporation pays $600,000 for an 80 percent interest in Sun Company, when Sun’s net assets have a book value of $550,000 and a fair value of $700,000. The $150,000 excess fair value is due to undervalued equipment with a five-year remaining useful life. Any goodwill is not amortized. Separate incomes of Pam and Sun for 2017 are $1,000,000 and $100,000, respectively.

REQUIRED

1. Calculate consolidated net income and noncontrolling interest share under (a) parent-company theory and (b) entity theory.

2. Determine goodwill at December 31, 2017, under (a) parent-company theory and (b) entity theory.

Computations under parent company and entity theories fair value book value differentials On



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