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Eliminating Entries with Negative Goodwill and Push-Down Accounting

E4-6 Eliminating Entries with Negative Goodwill

Snow Corporation purchased all of Cogner Corporation's voting shares on January 1, 2002, for $365,000. At that time Cogner reported common stock outstanding of $80,000 and retained earnings of $130,000. The book value of Cogner's assets and liabilities approximated their fair vales, except for land, which had a book value of $80,000 and a fair value of $100,000, and buildings, which had a book value of $220,000 and a fair value of $400,000. Land and buildings are the only noncurrent assets that Cogner holds.

Required

a. Compute the amount of negative goodwill at the date of acquisition.
b. Give the eliminating entry or entries required immediately following the acquisition to prepare a consolidated balance sheet.

E4-12 Push-Down Accounting

Jefferson Company purchased all of Louis Corporation's common shares on January 2, 2003, for $789,000. At the date of combination, Louos's balance sheet appeared as follow:

Assets Liabilities

Cash and Receivables 34,000 Current payables 25,000
Inventory 165,000 Notes Payables 100,000
Land 60,000 Stockholder's Equity
Buildings (net) 250,000 Common Stock 200,000
Equipment (net) 320,000 Additional Capital 425,000
Retained Earnings 79,000
Total 829,000 Total 829,000

The fair values of all Louis's assets and liabilities were equal to their book values except for its fixed assets. Louis's land had a value of $75,000; the buildings, a fair value of $300,000; and the equipment, a fair value of $340,000.
Jefferson Company decided to employ push-down accounting for the acquisition of Louis Corporation. Subsequent to the combination, Louis continued to operate as a separate company.

Required:

a. Record the purchase of Louis's stock on Jefferson's books.
b. Present any entries that would be made on Louis's books related to the business combination, assuming push-down accounting is used.
c. Present, general journal form, all elimination entries that would appear in a consolidation work-paper for Jefferson and its subsidiary prepared immediately following the combination.

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E4-6 Eliminating Entries with Negative Goodwill

Snow Corporation purchased all of Cogner Corporation's voting shares on January 1, 2002, for $365,000. At that time Cogner reported common stock outstanding of $80,000 and retained earnings of $130,000. The book value of Cogner's assets and liabilities approximated their fair vales, except for land, which had a book value of $80,000 and a fair value of $100,000, and buildings, which had a book value of $220,000 and a fair value of $400,000. Land and buildings are the only noncurrent assets that Cogner holds.

Required

a. Compute the amount of negative goodwill at the date of acquisition.
b. Give the eliminating entry or entries required immediately following the acquisition to prepare a consolidated balance sheet.

a. Amount of negative goodwill
Book value of Conger's net assets:
Common stock outstanding 80,000
Retained Earnings 130,000
Total 210,000
Fair ...

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The solution explains the eliminating entries with negative goodwill and push-down accounting

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