1. Scenario Technical Specifications
On 1 January 2026, Parent Corp acquires an 80% stake in Subsidiary Ltd by transferring $800,000 in cash.
  • The acquisition-date fair value of the remaining 20% Non-Controlling Interest (NCI) is calculated at $200,000 based on market share tracking.
  • The book value of Subsidiary Ltd’s net identifiable assets is $700,000.
  • An independent appraisal reveals that Subsidiary Ltd’s plant and machinery asset has a fair value that exceeds its book value by $100,000 on the acquisition date.
  • Total Fair Value of Identifiable Net Assets: $700,000 (Book Value) + $100,000 (Fair Value Adjustment) = $800,000.

2. Goodwill Allocation Computations (Full Goodwill Method)
To calculate goodwill using the Full Goodwill Method, the total consideration and NCI are compared against the fair value of the identifiable net assets:
Total Enterprise Valuation Basis = Consideration Transferred (800000) + Fair Value of NCI (200000) = 1000000
Total Consolidated Goodwill = 1000000 − Fair Value of Net Identifiable Assets (800000) = 200000
3. Workbook Elimination and Balance Sheet Adjustments
The consolidated working papers incorporate the following elimination adjustment entries to assemble the primary combined financial statements:
[1 January 2026 Consolidated Elimination Journal Entry]
  • Debit: Common Stock (Subsidiary Book Basis)     $500,000
  • Debit: Retained Earnings (Subsidiary Book Basis) $200,000
  • Debit: Plant & Machinery (Fair Value Step-Up)   $100,000
  • Debit: Goodwill (Calculated Residual Asset)     $200,000
  • Credit: Investment in Subsidiary (Parent Book)           $800,000
  • Credit: Non-Controlling Interest (Equity Allocation)      $200,000

[Consolidated Balance Sheet Structural Impact]
  • The Parent's "Investment in Subsidiary" asset ($800,000) drops to $0.
  • The Subsidiary's individual asset records are pulled onto the consolidated
    balance sheet at full fair value, plus $200,000 of goodwill.
  • A separate equity line item, "Non-Controlling Interest," is created with a
    starting balance of $200,000 to represent minority investor rights.
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