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An Introduction to Consolidated
Financial Statements
7. Amortize the excess of the fair value over the book value
in periods subsequent to the acquisition.
2: SUBSIDIARIES
Sel’s Balance Sheet: BV=FV Pen acquires 100% of Sel for $40,
which equals the book value and fair
Cash $10
values of the net assets acquired.
Other current assets 15
Plant assets, net 40
Cost of acquisition $40
Total $65
Less 100% book value 40
Accounts payable $15
Other current liabilities 10 Excess of cost over book value $0
Capital stock 30
Retained earnings 10
To consolidate, eliminate Pen's
Total $65 Investment account and Sel's capital
stock and retained earnings.
Investment in Sel 40 0 0
Retained earnings 20 10 20
Total $165 $65 $190
4: FAIR VALUE AT
ACQUISITION DATE
Sandy BV FV
BV = 100 + 145 = $245
Cash $40 $40
FV = 385 – 75 = $310
Receivables 30 30
Inventory 50 75
Plant, net 200 240
Cost – FV = $0
goodwill
Total $320 $385
Cost $310
Liabilities $75 $75
100% Book value 245
Capital stock 100
Excess of cost over BV $65
Retained earnings 145
Total $320
Salty BV FV
Cash $100 $100
BV = 250 + 190 = $440
Receivables 40 40 FV = 580 – 85 = $495
Inventory 250 250 Cost – FV = $35 goodwill
Plant, net 130 190
Total $520 $580
5: NONCONTROLLING
INTERESTS
6: CONSOLIDATED
BALANCE SHEETS AFTER
ACQUISITION
7: AMORTIZATIONS AFTER
ACQUISITION
8: CONSOLIDATED
INCOME STATEMENTS
• Cost of sales, building depreciation, and interest expense are increased by $100, $25,
and $100, and equipment depreciation is $60 lower than the sum of Pil and Sad.
• Sad's income $ 635