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:

Descriptive Statistics

Statistical procedures that summarize, organize, and simplify data in order to describe its main features.

Correlational Statistics

Mathematical methods used to measure and describe the relationship between two variables.

Experimental Group

In research, the group of participants that receives the treatment or intervention under investigation to assess its effect.

Control Group

In experimental research, a group of subjects that does not receive the experimental treatment or intervention, used as a benchmark to measure the effect of the treatment.