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Purchase method for consolidation entries

Pacific has the following account balances as of Feb 1.

Inventory....................................$600,000
Land..........................................500,000
Buildings (net) (valued at $1,000,000)........900,000
Common Stock ($10 par value)..................(800,000)
Retained earnings 1/1.........................(1,100,000)
Revenues......................................(600,000)
Expences......................................500,000

Western pays $2,020,000 in cash. An additional $20,000 is paid in direct combination costs. For each of the following accounts, determine what balance will be included in a Feb 1 consolidation.

a) Inventory
b) Goodwill
c) Expenses
d) Buildings
e) Land

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Please see attached solution

a. Inventory (fair market value) $600,000

b. A bargain purchase has occurred; thus, no goodwill is recognized.

Purchase price (includes direct combination costs) $2,040,000
Book value of assets (no liabilities are indicated) 2,000,000
Cost in excess of ...

Solution Summary

The solution examines purchase method for consolidation entries.

$2.19