Parrot Inc. acquired an 85% interest in Sparrow Corporation on January 2, 2014 for $42,500 cash when Sparrow had Capital Stock of $15,000 and Retained Earnings of $25,000. Sparrow’s assets and liabilities had book values equal to their fair values except for inventory that was undervalued by $2,000. Balance sheets for Parrot and Sparrow on January 2, 2014, immediately after the business combination, are presented in the first two columns of the consolidated balance sheet working papers.
Required: Compute the following and then complete the attached consolidated balance sheet working papers.
a.) Compute implied FV
b.) Determine the excess of FV over BV acquired (if any)
c.) Allocate any excess of FV over BV acquired as appropriate
d.) Complete the attached Consolidated Balance Sheet immediately after the business combination on January 2, 2014.
