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PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par stock with a market value of $40 per share. Registration fees were $500,000 and legal fees were $300,000, all paid in cash. SFC's book value at the date of acquisition was $8,000,000. At the date of acquisition, all of SFC's assets and liabilities were reported at amounts approximating fair value, except that its plant and equipment was overvalued by $10,000,000. SFC also had unreported identifiable intangible assets valued at $15,000,000, and unreported warranty liabilities of $4,000,000. A deferred tax liability valued at $2 million was reported in consolidation at the date of acquisition.
-Eliminating entry (R) reduces Investment in SFC by:

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The investment in SFC is reduced by the purchase price of $40,000,000 (1,000,000 shares x $40) minus the fair value adjustments: $10,000,000 overvaluation of plant and equipment, $15,000,000 intangible assets, $4,000,000 warranty liabilities, and $2,000,000 deferred tax liability, resulting in a net reduction of $32,000,000.

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