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

Exercise 14

Purchase of shares directly fromsubsidiary. Prior to January 2, 2014, Penstar and Sargio are separate corporations. Sargio Corporation is contemplating a major expansion and seeks to be purchased by a larger corporation with available cash. Penstar Corporation issues $1,320,000 of bonds and uses the proceeds to buy 30,000 newly issued Sargio shares for $44 per share. The price reflects a control premium since the fair value of the NCI shares is $40. Just prior to the issue of the bonds and the issue and purchase of Sargio stock, Penstar and Sargio have the following separate balance sheets:
Purchasing the 30,000 new shares gives Penstar Corporation a 60% controlling interest (30,000 of a total 50,000 common shares). On the purchase date, Sargio's property is undervalued by $200,000 and has a remaining life of 20 years. Any remaining excess cost can be attributed only to goodwill.
Prepare a determination and distribution of excess schedule for Penstar Corporation's investment in Sargio. Prepare a consolidated balance sheet for the consolidated firm immediately after the acquisition by Penstar Corporation.