Banderas Ltd acquires all the issued capital of Ryan Ltd for a cash payment of $2,900,000 on 30 June 2004.The balance sheet of Ryan Ltd at purchase date is: Assuming the assets are at fair value,what is the consolidation entry to eliminate the investment in Ryan Ltd?
E) None of the given answers.

Question

Banderas Ltd acquires all the issued capital of Ryan Ltd for a cash payment of $2,900,000 on 30 June 2004.The balance sheet of Ryan Ltd at purchase date is:  Assuming the assets are at fair value,what is the consolidation entry to eliminate the investment in Ryan Ltd?
E) None of the given answers.

Quizplus · Accepted Answer

To eliminate the investment in Ryan Ltd, we need to do a consolidation entry. 
The consolidated balance sheet should show the assets and liabilities at fair value. 
Therefore, we need to eliminate the investment in Ryan Ltd and record the fair value of the assets and liabilities acquired. 
The entry should be:
Dr. Assets (at fair value) $3,100,000
Cr. Liabilities (at fair value) $1,400,000
Cr. Investment in Ryan Ltd $2,900,000
Cr. Goodwill $700,000
Option C is the correct answer as it represents the above entry.

Banderas Ltd Acquires All the Issued Capital of Ryan Ltd