Purchase of shares directly from subsidiary. Prior to January 2, 20X4, People and Sample are separate corporations. Sample Corporation is contemplating a major expansion and seeks to be purchased by a larger corporation with available cash. People Corporation issues $1,200,000 of bonds and uses the proceeds to buy 30,000 newly issued Sample shares for $40 per share. Just prior to the issue of the bonds and the issue and purchase of Sample stock, People and Sample have the following separate balance sheets:
| |
People Corporation |
Sample Corporation |
|
Current assets .
|
$ 600,000
|
$100,000
|
|
Land.
|
150,000
|
60,000
|
|
Property, plant, and equipment
|
700,000
|
400,000
|
|
Total assets. .
|
$1,450,000
|
$560,000
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current liabilities .
|
$ 250,000
|
$100,000
|
|
Common stock ($5 par). .
|
400,000
|
100,000
|
|
Retained earnings
|
800,000
|
360,000
|
|
Total liabilities and equity
|
$1,450,000
|
$560,000
|
Purchasing the 30,000 new shares gives People Corporation a 60% controlling interest (30,000 of a total 50,000 common shares). On the purchase date, Sample's property is undervalued by $200,000 and has a remaining life of 20 years. Any remaining excess cost can be attributed only to goodwill.
Prepare a determination and distribution of excess schedule for People Corporation's investment in Sample. Prepare a consolidated balance sheet for the consolidated ?rm immediately after the acquisition by People Corporation.