Question: Consolidation entries at date of acquisition (purchase price greater than book value)
A parent company exchanges 12,000 shares of its $2 par value common stock, with a fair value of $9/share, for all of the shares owned by the subsidiary's shareholders. On the acquisition date, the subsidiary reported $30,000 of contributed capital (i.e., common stock) and $45,000 of Retained Earnings. An examination of the subsidiary's balance sheet revealed that book values were equal to fair values for all assets except for PPE (net), which has a book value of $40,000 and a fair value of $73,000.
a. Prepare the entry that the parent makes to record the investment.
b. Prepare the [E] and [A] consolidation entries.