On June 10, 20X8, Playoff Corporation acquired 100 percent of Series Company's common stock. Summarized balance sheet data for the two companies immediately after the stock acquisition are as follows: Playoff Corp. Series Company
Item Book Value Fair Value
Cash $ 15,000 $ 5,000 $ 5,000
Accounts Receivable 30,000 10,000 10,000
Inventory 80,000 20,000 25,000
Buildings & Equipment (net) 120,000 50,000 70,000
Investment in Series Stock 100,000
Total $ 345,000 $ 85,000 $ 110,000
Accounts Payable $ 25,000 $ 3,000 $ 3,000
Bonds Payable 150,000 25,000 25,000
Common Stock 55,000 20,000
Retained Earnings 115,000 37,000
Total $ 345,000 $ 85,000 $ 28,000
Required:
a. Prepare the consolidating entries required to prepare a consolidated balance sheet immediately after the acquisition of Series Company shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
b. Record the excess value (differential) reclassification entry.

a. Consolidating Journal Entries:

Description                             Debit      Credit

June 10, 20X8:

Cash                                      $5,000

Accounts receivable             10,000

Inventory                              25,000

Building & Equipment         70,000

Unrealized Gain on fair value            $25,000

Accounts payable                                   3,000

Bonds payable                                     25,000

Investment in Series Stock                100,000

Excess Value (differential) 43,000

To record consolidating entries in the consolidated parent.

Goodwill                             43,000

Excess Value (differential)                  43,000

To record the reclassification of the excess value as Goodwill on acquisition.

Explanation:

a) Summarized balance sheet data

                                   Playoff Corporation             Series Company

Item                                                                    Book Value   Fair Value

Cash                                      $ 15,000               $ 5,000          $ 5,000

Accounts Receivable              30,000                 10,000            10,000

Inventory                                 80,000                 20,000           25,000

Buildings & Equipment (net) 120,000                 50,000           70,000

Investment in Series Stock   100,000

Total                                   $ 345,000              $ 85,000       $ 110,000

Accounts Payable              $ 25,000                 $ 3,000          $ 3,000

Bonds Payable                     150,000                  25,000          25,000

Common Stock                     55,000                  20,000

Retained Earnings               115,000                   37,000

Total                                $ 345,000                $ 85,000       $ 28,000

b) Consolidated entries are made for assets and liabilities acquired of the subsidiary using fair values.  An unrealized gain on fair value account is created to account for the differences in fair values.  Any excess or differential after consolidation and above the fair values is regarded as Goodwill arising from the acquisition.

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