Use the following information to answer bellow Questions :
Precision Company acquires all of Springfield Company's voting stock for $5,000,000 in cash. Information on Springfield's assets and liabilities at the date of acquisition is as follows:
$$\begin{array} { | l | c | c | }
\hline & \begin{array} { c }
\text { Book Value } \
\text { Dr (Cr) }
\end{array} & \begin{array} { c }
\text { Fair Value } \
\text { Dr (Cr) }
\end{array} \
\hline \text { Current assets } & \$ 500,000 & \$ 700,000 \
\hline \text { Land, buildings and equipment } \{ \text { net } \} & 2,000,000 & 3,500,000 \
\hline \text { Liabilities } & \{ 600,000 \} & \{ 550,000 \} \
\hline \text { Capital stock } & \{ 500,000 \} & \
\hline \text { Retained earnings } & \{ 1,400,000 \} & \
\hline
\end{array}$$ In addition, Springfield Company has unrecorded identifiable intangible assets, in the form of brand names and lease agreements, with a total estimated fair value of $400,000.
-In eliminating entry (R) on the consolidation working paper, the credit to investment is:

Question

Use the following information to answer bellow Questions :
Precision Company acquires all of Springfield Company's voting stock for $5,000,000 in cash. Information on Springfield's assets and liabilities at the date of acquisition is as follows:
 $$\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { Book Value } \
\text { Dr (Cr) }
\end{array} & \begin{array} { c } 
\text { Fair Value } \
\text { Dr (Cr) }
\end{array} \
\hline \text { Current assets } & \$ 500,000 & \$ 700,000 \
\hline \text { Land, buildings and equipment } \{ \text { net } \} & 2,000,000 & 3,500,000 \
\hline \text { Liabilities } & \{ 600,000 \} & \{ 550,000 \} \
\hline \text { Capital stock } & \{ 500,000 \} & \
\hline \text { Retained earnings } & \{ 1,400,000 \} & \
\hline
\end{array}$$ In addition, Springfield Company has unrecorded identifiable intangible assets, in the form of brand names and lease agreements, with a total estimated fair value of $400,000.
-In eliminating entry (R) on the consolidation working paper, the credit to investment is:

Quizplus · Accepted Answer

The credit to investment is calculated as the purchase price minus the fair value of net identifiable assets. The fair value of net identifiable assets is $4,050,000 ($700,000 + $3,500,000 + $400,000 - $550,000). The credit to investment is $5,000,000 - $4,050,000 = $950,000. However, the question asks for the credit to investment in the eliminating entry, which is the fair value of net assets, $4,050,000, minus the book value of net assets, $1,950,000 ($500,000 + $2,000,000 - $600,000), resulting in $2,100,000. Therefore, the correct answer is $3,100,000 ($5,000,000 - $1,900,000).

Use the Following Information to Answer Bellow Questions : Precision

Use the Following Information to Answer Bellow Questions :
Precision