Pulman Company Acquired 90% of the Stock of Spectrum Company

question 15

Essay

Pulman Company acquired 90% of the stock of Spectrum Company for $6,300,000 on January 1, 2016. On this date, the fair value of the assets and liabilities of Spectrum Company was equal to their book value except for the inventory and equipment accounts. The inventory had a fair value of $2,300,000 and a book value of $1,900,000. The equipment had a fair value of $3,300,000 and a book value of $2,800,000.
The balances in Spectrum Company's capital stock and retained earnings accounts on the date of acquisition were $3,700,000 and $1,900,000, respectively.
Required:
In general journal form, prepare the entries on Spectrum Company's books to record the effect of the pushed down values implied by the acquisition of its stock by Pulman Company assuming that:
A values are allocated on the basis of the fair value of Spectrum Company as a whole imputed from the transaction.
B values are allocated on the basis of the proportional interest acquired by Pulman Company.

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Definitions:

Straight Rebuy

A routine purchasing decision in which a business reorders a product or service without any modifications or consideration of new options.

Contract Negotiations

The process of discussing terms and reaching an agreement in a contract, often involving matters such as price, delivery, and terms of service between two or more parties.

Low-involvement

Products or services that require minimal thought and effort from consumers before purchase due to their simplicity and low cost.

High-involvement

Refers to purchase decisions that carry a higher risk to buyers and therefore require more thought and research.