Although Sloan Company had satisfactory earnings reports in 20X5 and 20X6, it reported a negative retained earnings balance on December 31, 20X6. Jacobs Company purchased 80 percent of Sloan%u2019s common stock on January 1, 20X7.
- Explain how Sloan%u2019s negative retained earnings balance is reflected in the consolidated balance sheet immediately following the acquisition.
- Explain how, if at all, the existence of negative retained earnings changes the consolidation workpaper entries prepared by the parent company.
- Can goodwill exist if Jacobs pays more than book value for Sloan%u2019s shares? Why or why not? Justify your answer using examples and reasoning.