Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 36

D D only, nontaxable exchange, tax loss carryover. On December 31, 2015, Bryant Company exchanges 10,000 of its $10 par value shares for a 90% interest in Jones Company. The purchase is recorded at the $72 per-share fair value of Bryant shares. Jones Company has the following balance sheet on the date of the purchase:
It is determined that the following fair values differ from book values for the assets of Jones Company:
Inventory.................................. $200,000
Depreciable fixed assets (net).................. 500,000 (20-year life)
Investment in marketable securities.............. 170,000
The purchase is a tax-free exchange to the seller, which means Bryant Company will use the book value of Jones's assets for tax purposes. Jones Company has $200,000 of tax loss carryovers. Bryant will be able to utilize $40,000 of the losses to offset taxes to be paid in 2016. The balance of the tax loss carryover will not be used within a year but is considered fully realizable in the future. The tax rate for both firms is 30%.
Record the investment and prepare a value analysis schedule and a determination and distribution of excess schedule.
Suggestion: Asset adjustments should be accompanied by the appropriate deferred tax liability.