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:

Trichromatic Theory

The theory of color vision suggesting that three types of cones in the retina each make a maximal chemical response to one of three colors—blue, green, or red.

Color Sensitive Cones

Photoreceptor cells in the retina of the eye that are responsible for color vision under bright light conditions.

Retina

The light-sensitive layer of tissue at the back of the inner eye, which converts light images into electrical signals sent to the brain.

Saturation

The purity of a color, or the degree to which the light waves producing it are of the same wavelength.