Atwater Company and Bailey, Inc.
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Atwater Company acquires 80 percent of the outstanding voting stock of Belwood Company. On that date, Belwood possesses a building with a $160,000 book value but a fair market value of $220,000. Assuming that a bargain purchase has not been made, at what value would this building be consolidated under each of the following?
a. Economic unit concept.
b. Proportionate consolidation concept.
c. Parent company concept.
1. Bailey, Inc., buys 60 percent of the outstanding stock of Luebs, Inc., in a purchase that resulted in the recognition of goodwill. Luebs owns a piece of land that cost $200,000 but was worth $500,000 at the date of purchase. For each of the three concepts described in this chapter, what value would be attributed to this land in a consolidated balance sheet at the date of takeover?
(See chart in attached file)
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Solution Summary
This solution is comprised of a detailed explanation to answer at what value would this building be consolidated under economic unit concept, proportionate consolidation concept, and parent company concept for Atwater Company and what value would be attributed to this land in a consolidated balance sheet at the date of takeover.
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Atwater Company acquires 80 percent of the outstanding voting stock of Belwood Company. On that date, Belwood possesses a building with a $160,000 book value but a fair market value of $220,000. Assuming that a bargain purchase has not been made, at what value would this building be consolidated under each of the following?
a. Economic unit concept.
b. Proportionate consolidation concept.
c. Parent company concept.
Generally, the economic unit approach includes in consolidated financial statements the entire fair market value of the subsidiary's assets as of the date the parent obtains control over the subsidiary. Minority interests in subsidiary net assets are considered to be part of consolidated stockholders' equity. Therefore, under economic unit approach, the value of the building should be recorded at market value of $220,000.
The proportionate consolidation approach includes in the consolidated financial statements only the parent's proportionate interest in the subsidiary's assets and liabilities, measured at fair market value as of the date of acquisition by the consolidated entity. Minority interest is ...
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