Business Accounting Problem
A. Business combination recorded as

Business Accounting Problem

A. Business combination recorded as

A. Business combination recorded as a purchase. In the purchase method of accounting for a business merger, any difference between the terms of the merger and the book value of the acquired firm is accounted for as goodwill on the asset side of the balance sheet of the acquired company and as acquired surplus on the liability side of the balance sheet. The earned surplus of the acquired company is added to the capital surplus of the acquiring company.

(1) Journal entry to record the combination on the books of the subsidiary:

Land 30,000

Paid in capital $82,000

(2) Eliminating entry required to prepare a consolidated balance sheet:

parent $60,000

B. Business combination recorded as a pooling of interests. In the pooling of interests method of accounting for a business merger, the assets and liabilities of each company are combined. Any difference between the merger terms and the book value of the net worth of the combined companies is accounted for in the capital surplus account of the combined companies. The earned surplus of the acquired company is added to the capital surplus of the acquiring company.

(1) Journal entry to record the combination on the books of the parent company:

Paid in capital: Parent $52,500

Common: Parent $100,000

(2) Eliminating entry required to prepare a consolidated balance sheet:

parent $47,500

Paid in capital–subsidiary $ 65,790

Paid in capital–parent $ 65,790

Retained earnings–parent $126,000

subsidiary



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