Question

Case: Papa Burger Inc. has determined that they need to add to their product line. They have decided to acquire an interest in Sloppy Joe Company that would provide significant influence and control. The following are the purchase details:

On Jan 1 2010 the following took place

Parent Co Paid              $900,000

Parent Purchased X% of sub    80%

1. Complete the real entry to record the investment. It has been determined that the parent company has significant influence and control

Date                    Account                Debit             Credit

Subsidiary Equity Position as of 1/1/2010

Common stock- Sub             $50,000

APIC – Sub                                 $350,000

Retained Earnings-Sub        $575,000

                                                975,000

2. Prepare CAD

NOTE: After reviewing Sloppy Joe’s accounts, the only account with a difference between book value and fair value is land.

Account                      Book Value                Fair Value

Land                           $335,000                     $415,000

3. Complete the workpaper entry necessary for the consolidation workpaper at acquisition

4. Complete the consolidation workpaper

The Balance Sheet forthe Parent (Papa Burger Inc.) and Subsidiary (Sloppy Joe Company) as of January 2010 (immediatelyfollowing the acquisition) were asfollows: Papa Burger Inc Sloppy Joe Co 150,000 Cash 250,000 250,000 150,000 Accounts Receivable 200,000 250,000 Inventory 900,000 Invesment in Subsidiary 2,200,000 740,000 Equipment 550,000 350,000 Building 120,000 Land 335,000 Goodwill Difference 4,470,000 S 1.975,000 Total Assets Liabilities 500,000 200,000 Accounts Payable 850,000 800,000 Short-term Debt 2,100,000 Mortgage Payable 3,450,000 1,000,000 Total Liabilities Common Stock Papa Common Stock Sloppy 610,000 APIC Papa 350,000 APIC Sloppy RE Papa RE Sloppy NC 975,000 1,020,000 Total Equity Total Liabilities and Equity 4,470,000 S 1,975,000 Debit Credit NCI Consolidated Balance