Problem:
Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a negative retained earnings balance on December 31, 20X6. Jacobs Corporation purchased 100 percent of Sloan's common stock on January 1, 20X7.
Required:
Question 1: Explain how Sloan's negative retained earnings balance is reflected in the consolidated balance sheet immediately following the acquisition. Please provide all computation and formulas.
Question 2: Explain how the existence of negative retained earnings changes the consolidation worksheet entries. Please provide all computation and formulas.
Question 3: Can goodwill be recorded if Jacobs pays more than book value for Sloan's shares? Explain. Please provide all computation and formulas.