CHAPTER 3

Note: The letter A or B indicated for a question, exercise, or problem means that the question, exercise, or
problem relates to a chapter appendix.
ANSWERS TO QUESTIONS
1. (1) Stock acquisition is greatly simplified by avoiding the lengthy negotiations required in an exchange of
stock for stock in a complete takeover.
(2) Effective control can be accomplished with more than 50% but less than all of the voting stock of a
subsidiary; thus the necessary investment is smaller.
(3) An individual affiliates legal existence provides a measure of protection of the parents assets from
attachment by creditors of the subsidiary.
2. The purpose of consolidated financial statements is to present, primarily for the benefit of the shareholders
and creditors of the parent company, the results of operations and the financial position of a parent company
and its subsidiaries essentially as if the group were a single company with one or more branches or divisions.
The presumption is that these consolidated statements are more meaningful than separate statements and
necessary for fair presentation. Emphasis then is on substance rather than legal form, and the legal aspects
of the separate entities are therefore ignored in light of economic aspects.
3. Each legal entity must prepare financial statements for use by those who look to the legal entity for analysis.
Creditors of the subsidiary will use the separate statements in assessing the degree of protection related to
their claims. Noncontrolling shareholders, too, use these individual statements in determining risk and the
amounts available for dividends. Regulatory agencies are concerned with the net resources and results of
operations of the individual legal entities.
4. (1) Control should exist in fact, through ownership of more than 50% of the voting stock of the
subsidiary.
(2) The intent of control should be permanent. If there are current plans to dispose of a subsidiary, then the
entity should not be consolidated.
(3) Majority owners must have control. Such would not be the case if the subsidiary were in bankruptcy or
legal reorganization, or if the subsidiary were in a foreign country where political forces were such that
control by majority owners was significantly curtailed.
5. Consolidated workpapers are used as a tool to facilitate the preparation of consolidated financial statements.
Adjusting and eliminating entries are entered on the workpaper so that the resulting consolidated data
reflect the operations and financial position of two or more companies under common control.

6. Noncontrolling interest represents the equity in a partially owned subsidiary by those shareholders who are
not members in the affiliation and should be accounted and presented in equity, separately from the parents
shareholders equity. Alternative views have included: presenting the noncontrolling interest as a liability
from the perspective of the controlling shareholders; presenting the noncontrolling interest between
liabilities and shareholders equity to acknowledge its hybrid status; presenting it as a contra-asset so that
total assets reflect only the parents share; and presenting it as a component of owners equity (the choice
approved by FASB in its most recent exposure drafts).
7. The fair, or current, value of one or more specific subsidiary assets may exceed its recorded value, or specific
liabilities may be overvalued. In either case, an acquiring company might be willing to pay more than book
value. Also, goodwill might exist in the form of above normal earnings. Finally, the parent may be willing to
pay a premium for the right to acquire control and the related economic advantages gained.
8. The determination of the percentage interest acquired, as well as the total equity acquired, is based on
shares outstanding; thus, treasury shares must be excluded. The treasury stock account should be
eliminated by offsetting it against subsidiary stockholder equity accounts. The accounts affected as well as
the amounts involved will depend upon whether the cost or par method is used to account for the treasury
stock.
9. None. The full amount of all intercompany receivables and payables is eliminated without regard to the
percentage of control held by the parent.
10A. The decision in SFAS No. 109 and SFAS No. 141R [topics 740 and 805] is primarily a display issue and
would only affect the calculation of consolidated net income if there were changes in expected future tax
rates that resulted in an adjustment to the balance of deferred tax assets or deferred tax liabilities. Prior to
SFAS No. 109 and SFAS No. 141R, purchased assets and liabilities were displayed at their net of tax amounts
and related figures for amortization and depreciation were based on the net of tax amounts. With the
adoption of SFAS No. 109 and SFAS No. 141R, assets and liabilities are displayed at fair values and the tax
consequences for differences between their assigned values and their tax bases are displayed separately as
deferred tax assets or deferred tax liabilities. Although the amounts shown for depreciation, amortization
and income tax expense are different under SFAS No. 109 and SFAS No. 141R, absent a change in expected
future tax rates, the amount of consolidated net income will be the same.
ANSWERS TO BUSINESS ETHICS CASE
Part 1

Even though the suggested changes by the CFO lie within GAAP, the proposed changes will unfairly increase
the EPS of the company, misleading the common investors and other users. It is evident that the CFO is
doing it for his or her personal gain rather than for the transparency of financial reporting. Thus,
manipulating the reserve in this case comes under the heading of unethical behavior. Taking a stand in such
a situation is a difficult and challenging test for an employee who reports to the CFO.
Part 2
The tax laws permit individuals to minimize taxes by means that are within the law like using tax deductions,
changing one's tax status through incorporation, or setting up a charitable trust or foundation. In the given
case the losses reported were phony and the whole scheme was fabricated to illegally benefit certain
individuals; hence there appears to be a criminal intent in the scheme. Although there is no reason to pay
more tax than necessary, the lack of risk in these types of shelters makes participation in such schemes of
questionable ethics, at the best.

ANSWERS TO EXERCISES
Exercise 3-1
a. Common Stock Saltez
Other Contributed Capital - Saltez
Retained Earnings - Saltez
Property,Plant, and Equipment
Investment in Saltez

160,000
92,000
43,000
56,000
351,000

b. Common Stock Saltez

190,000
Other Contributed Capital Saltez
75,000
Property, Plant, and Equipment
21,778
($232,000/0.9-[$190,000+$75,000-$29,000])
Retained Earnings Saltez
Investment in Saltez
Noncontrolling Interest

29,000
232,000
25,778

c. Common Stock Saltez

180,000
Other Contributed Capital Saltez
40,000
Retained Earnings Saltez
4,000
Investment in Saltez
159,000
Gain on Purchase of Business Prancer **
13,800
Noncontrolling Interest (.2) ($198,750) + $3,450*

43,200

** The ordinary gain to Prancer is $159,000 (.80)($216,000) = $13,800

* Noncontrolling interest reflects the noncontrolling share of implied value (.20 x $198,750, or $39,750), plus
the NCI portion of the bargain (.20 x $17,250)
NOTE: We know this is a bargain acquisition in part c because the investment cost of $159,000 implies a total
value of $198,750. Since this value is less than the book value of equity of $216,000 [$180,000+$40,000$4,000], the difference is a bargain of $17,250. This bargain is allocated between the parent (this portion is
reflected as a gain) and the NCI.
Exercise 3-2
Part A Investment in Save (40,000 $17.50)

700,000

Common Stock
400,000
Other Contributed Capital ($700,000 $20,000 $400,000) 280,000
Cash
20,000
Part B Common Stock Save
Other Contributed Capital Save
Retained Earnings Save
Investment in Save

320,000
175,000
205,000
700,000

Exercise 3-5
(1)
Common StockSpruce
900,000
Other Contributed CapitalSpruce
440,000
Retained EarningsSpruce
150,000
Land [$1,400,000/.90 ($900,000 + $440,000 + $150,000 - $100,000)] 165,556
Investment in Spruce Company
1,400,000
Treasury Stock
100,000
Noncontrolling Interest ($1,400,000/.90 .10)
155,556
(2)
Common StockSpruce
900,000
Other Contributed CapitalSpruce
440,000
Retained EarningsSpruce
150,000
Land
10,000
Investment in Spruce Company
1,160,000
Treasury Stock
100,000
Gain on Purchase of Business - Pool *
100,000
Noncontrolling Interest [($1,050,000 + $990,000 + $180,000 - $820,000) x .10]
* [$1,160,000 ($1,050,000 + $990,000 + $180,000 $820,000) x .90] = $100,000
Exercise 3-7
Part A. Long-term receivable from subsidiary $500,000
Current assets: interest receivable from subsidiary $50,000
Part B. None
Exercise 3-8
Investment in Shy Inc. [$2,500,000 + (15,000 $40)] 3,100,000
Cash
2,500,000
Common Stock
30,000
Other Contributed Capital ($40 - $2) 15,000
570,000

140,000

Exercise 3-9
Investment in Shy Inc. [$2,500,000 + (15,000 $40)] 3,100,000
Cash
2,500,000
Common Stock
30,000
Other Contributed Capital ($40 - $2) 15,000
570,000
Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable

97,000
90,000
7,000

Exercise 3-10A
Note: This solution assumes a difference between the basis of acquired assets for accounting and tax purposes
for this stock acquisition.
Part A Investment in Seely Company
Common Stock***
Additional Paid-in-Capital

570,000
95,000
475,000

***Note: Depending on the wording of this exercise, the credit may be cash instead of common stock and
additional paid-in-capital. If cash is paid, the credit to cash is $570,000.
Part B Common Stock - Seely
Other Contributed Capital Seely
Retained Earnings - Seely
Difference between Implied and Book Value*
Investment in Seely Company
Noncontrolling Interest [($570,000/.95) x .05]

80,000
132,000
160,000
228,000
570,000
30,000

* [$570,000/.95 ($80,000 + $132,000 + $160,000)]

Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**

52,000
25,000
71,000
20,000
127,200

Deferred Income Tax Liability*

Difference between Cost and Book Value

67,200
228,000

*(.40($52,000 + $25,000 + $71,000 + $20,000))

**228,000 [($52,000 + $25,000 + $71,000 + $20,000) x 60%]
Exercise 3-11A
Investment in Starless Company
Common Stock
Other Contributed Capital (($70 $5) 10,000)

700,000
50,000
650,000

Because the combination is consummated as a stock acquisition, the entry on the books of the acquirer is no
different than in the absence of deferred taxes. However, in the elimination entries, a deferred tax liability will
be recognized and the amount of goodwill will be altered accordingly.

ANSWERS TO PROBLEMS
Problem 3-2
Part A $100,000 Soho Total Par/$10 Par per share = 10,000 shares of Soho issued
8,000 shares acquired/10,000 total shares = 80%
Implied Value of Soho (100%) = $120,000/80% = $150,000.
Implied Value of Noncontrolling share = $150,000 x 20% = $30,000.
Computation and Allocation of Difference Schedule
Parent
NonEntire
Share Controlling Value
Share
Purchase price and implied value
120,00030,000150,000*
Less: Book value of equity acquired:
Common stock
80,000
20,000 100,000
Other contributed capital
13,200
3,300
16,500
Retained earnings
18,800
4,700
23,500
Totalbook value
112,000
28,000 140,000
Difference between implied and book value
Plant Assets
(8,000)
Balance
-0-

8,000
(2,000)
-0-

2,000 10,000
(10,000)
-0-

*$120,000/.80
Part B

PERRY COMPANY AND SUBSIDIARY SOHO

Consolidated Balance Sheet Workpaper
January 1, 2011
Perry
Soho
Company Company

Cash
Accounts Receivable
Inventory
Investment in Soho
Difference between

39,000
53,000
42,000
120,000

Eliminations
Debit
Credit

19,000
31,000
25,000
(1) 120,000

Noncontrollin Consolidated
g
Balance
Interest
58,000
84,000
67,000

Implied and Book Value

Plant Assets
Accumulated
Depreciation
Total
Current Liabilities
Mortgage Note Payable
Common Stock:
Perry Company
Soho Company
Other Contributed
Capital
Perry Company
Soho Company
Retained Earnings:
Perry Company
Soho Company
Noncontrolling Interest
Total

(1) 10,000 (2) 10,000

160,000 110,500 (2) 10,000
(52,000) (19,500)

280,500
(71,500)

362,000

166,000

418,000

18,500
40,000

26,000

44,500
40,000

120,000

120,000
100,000

(1)
100,000

135,000

135,000
16,500 (1) 16,500

48,500

48,500
23,500 (1) 23,500

362,000

166,000

(1) 30,000
160,000
160,000

30,000

(1) To eliminate investment account and create noncontrolling interest account.

(2) To allocate the difference between implied and book value to plant assets.

30,000
418,000

Problem 3-4

PHILLIPS COMPANY AND SUBSIDIARIES

Cash
Account Receivable
Note Receivable

Consolidated Balance Sheet Workpaper

January 2, 2011

Phillips Sanchez Thomas

Compan Company Company
y
43,700
20,000
7,000
24,000
20,000
28,000
10,000

Interest Receivable
Inventory
Investment in Sanchez
Company
Investment in Thomas
Company
Equipment
Land

Total Assets
Accounts Payable
Note Payable

Sanchez Company
Thomas Company
Other Contributed Capital:

Dr.

120,000

96,000

60,000
180,000

788,000
28,000

Cr.

Consolidated
Balance

72,000
(1)
10,000
(2)
300

43,000

(3)
225,000
(4)
168,000

225,000
168,000

Noncontrollin
g
Interest

70,700

300

259,000

40,000

30,000

80,000

70,000

294,000

183,000

900,917

20,000

18,000

66,000

10,000

Accrued Interest Payable

Common Stock:
Phillips Company

Eliminations

(3)**
7,250
(4)***
31,967

(1)
10,000
(2)

130,000
369,217

(a)
300

300
300,000

300,000
120,000
75,000

(3)
120,000
(4)
75,000

Phillips Company
Sanchez Company

300,000

300,000
90,000

Thomas Company
Retained Earnings
Phillips Company
Sanchez Company
Thomas Company

Noncontrolling Interest
Total Liabilities and Equity

40,000

160,000

(3)
90,000
(4)
40,000
160,000

64,000
40,000

(3)
64,000
(a)
300
(4)*
39,700
(3)****
(4)74,917
478,517

74,917

74,917

294,000 183,000 478,517

900,917
788,000
* ($40,000 $300); ** [$225,000/.80 ($120,000 + $90,000 + $64,000)]; *** [$168,000/.90 ($75,000 + $40,000 + $40,000
$300)];
**** ($225,000/.80 x .20) + ($168,000/.90 x .10)
(a) To establish reciprocity for interest receivable and payable and to recognize interest earned
(1) To eliminate intercompany note receivable and payable
(2) To eliminate intercompany interest receivable and payable
(3) To eliminate the investment in Sanchez Company and create noncontrolling interest account of $56,250
(4) To eliminate the investment in Thomas Company and create noncontrolling interest account $18,667

Problem 3-5
Part A Pat Company Cash balance, 12/31/2010
Less: Cash used in the acquisition of Solo
Pat Company Cash balance after acquisition
Consolidated Cash balance, 1/1/2011
Less: Pat Company Cash balance after acquisition
Difference
Less: Cash transfer unrecorded by Solo
Solo's cash balance, 1/1/2011

$540,000
236,000
$304,000
$352,000
304,000
48,000
10,000
$38,000

Part B The noncontrolling interest of $28,500 on the consolidated balance sheet is

equal to 10% of
the total stockholders' equity of Solo Company. Thus, total
stockholders' equity of Solo Company is

$28,500

0.10

$285,000 =

Part C Total stockholders equity of solo from (B) above

$285,000
Add: Accounts payable of Solo Company $386,000 $280,000 = $106,000
+ $4,000
of intercompany payables eliminated in consolidation
110,000
Add: Long-term liabilities of Solo Company, $605,500 - $520,000
85,500
Total assets of Solo Company 1/1/2011
$480,500

3 - 13

Problem 3-6

PING COMPANY AND SUBSIDIARY

Consolidated Balance Sheet Workpaper

July 31, 2011

Ping
Santos
Company Company

Eliminations
Dr.

Cash

320,000

150,000

Accounts Receivable

600,000

300,000

Note Receivable

100,000

Inventory
Advance to Santos Company
Investment in Santos Company
Difference between Implied &
Book Value
Plant and Equipment
Land
Total Assets

1,840,00
0
60,000

Consolidat
ed
Balance

Cr.

(a)
60,000

530,000
(2)
20,000
(5)
100,000

400,000

880,000

2,240,000
(1)
60,000
(3)2,010,0
00
(3)*
(6)
40,333
40,333

2,010,00
0
3,000,00
0
1,500,00
0
90,000
90,000

4,500,000
(6)
40,333

8,020,00
0
2,440,00
0

Accounts Payable

800,000

140,000

Notes Payable

900,000

100,000

Common Stock:
Ping Company

Noncontrolli
ng
Interest

220,333
8,370,333

(2)
20,000
(5)
100,000

2,400,00
0

920,000
900,000
2,400,000

3-14

Santos Company
Other Contributed Capital:
Ping Company

900,000
2,200,00
0

Santos Company
Retained Earnings
Ping Company

Santos Company

(3)
900,000
2,200,000

680,000

(3)
680,000

1,720,00
0

(c)
7,000
(b)
7,000
(3)
613,000

620,000

Noncontrolling Interest
Total

1,727,000

(3)
223,333

223,333**

223,333

8,020,00
0
2,440,00
0

Advance from Ping Company

(1)
60,000
(4)
7,000
(c)
7,000
2,534,66
6

Interest Payable
Interest Receivable
Total Liabilities and Equity

3-15

(a)
60,000
(b)
7,000
(4)
7,000
2,534,666

8,370,333

Problem 3-6 (continued)

* [$2,010,000/.90 ($900,000 + $680,000 + $620,000 - $7,000)] = $40,333; ** $2,010,000/.90 x .10 =
223,333
(a) To establish reciprocity for cash advances
(b) To adjust for unrecorded interest expense and interest payable
(c) To adjust for unrecorded interest income and interest receivable.
(1) To eliminate intercompany advances
(2) To eliminate intercompany accounts receivable and accounts payable
(3) To eliminate investment in Santos Company and create noncontrolling interest account
(4) To eliminate intercompany interest receivable and interest payable
(5) To eliminate intercompany note receivable and note payable
(6) To allocate the difference between implied and book value to land
Problem 3-8
Part A Investment in Sara Co. (13,400 $12)
160,800
Common Stock (13,400 $10)
Other Contributed Capital ($26,800 $4,000)
Cash

134,000
22,800
4,000

Investment in Rob Co.

50,000
Cash
50,000
Problem 3-8 (continued) Punto Company & Subsidiaries Consolidated Balance Sheet Workpaper at February 1,
2011
Part B

Punto
Sara
Rob
Company Company Compan
y
Cash
111,000
45,000
17,000
Account Receivable
35,000
35,000
26,000
Notes Receivable
18,000
Merchandise Inventory
106,000
35,500
14,000
Prepaid Insurance
13,500
2,500
500
Investment in Sara
160,800
Company
Investment in Rob Company 50,000
Difference between Implied
and
Book Value
Advances to Sara Company 10,000
Advances to Rob Company
5,000
Land
248,000
43,000
15,000
Buildings (net)
100,000
27,000
16,000
3-16

Eliminations
Dr.
Cr.
(a)

(4) **
7,263
(7)
11,176
(6)
7,263

Noncontrollin Consolidate
g
d
Interest
Balance
178,000
(2)
75,000
21,000
(3)
5,500
12,500
155,500
16,500
(4)
160,800
(5)
50,000
(5)
11,176
(6)
7,263
(1)
10,000
(1)
5,000
313,263
(7)
131,824
11,176

Equipment (net)
Total Assets

35,000
892,300

10,000
198,000

2,500
91,000

Accounts Payable

25,500

20,000

10,500

Income Taxes Payable

Notes Payable
Bonds Payable
Common Stock:
Punto Company
Sara Company
Rob Company
Other Contributed Capital:
Punto Company
Sara Company
Rob Company
Retained Earnings
Punto Company
Sara Company
Rob Company
Noncontrolling Interest
Total Liabilities and
Equity

30,000

10,000
6,000

100,000

47,500
923,087
(1)
15,000
(2)
21,000
(3)
12,500

10,500

(a)
5,000

25,000
40,000
4,000
100,000

434,000

434,000
144,000

42,000

(4)
144,000
(5)
42,000

38,000

(4)
12,000
(5)
38,000

172,800

172,800
12,000

130,000

130,000
6,000

892,300

198,000

(10,000)
91,000

(4)
6,000
321,202

3-17

(5)
10,000
(4)*
321,202

17,287

17,287
923,087

Problem 3-8 (continued)

(a) To adjust for cash in transit from Punto to Rob
(1) To eliminate intercompany advances
(2) To eliminate intercompany accounts receivable and accounts payable
(3) To eliminate intercompany notes receivable and notes payable
(4) To eliminate investment in Sara Company and create noncontrolling interest
account of $8,463
(5) To eliminate investment in Rob Company and create noncontrolling interest
account of $8,824
(6) To allocate the difference between implied and book value to the undervaluation of Saras land
(7) To allocate the difference between implied and book value to the overvaluation of Robs buildings
* [$160,800/.95 x .05] = $8,463
$8,463 (entry 4) + $8,824 (entry 5) = $17,287
** $160,800/.95 ($144,000 + $12,000 + $6,000)
Computation and Allocation of Difference

Purchase price and implied value

Less: Book value of equity acquired

Parent
NonEntire
Share Controlling Value
Share
50,000
8,824
58,824*
59,500 10,500
70,000

Difference between implied and book value(9,500) (1,676)

Decrease buildings to fair value
9,500
1,676
Balance
-0-0-

(11,176)
11,176
-0-

* $50,000/.85
Part C

PUNTO COMPANY AND SUBSIDIARIES

Consolidated Balance Sheet
February 1, 2011
Assets
Current Assets:
Cash
Accounts Receivable
Notes Receivable
Merchandise Inventory
Prepaid Insurance
Total Current Assets

$178,000
75,000
5,500
155,500
16,500
$ 430,500

Long-Term Assets:
Land
Buildings(net)
Equipment(net)

313,263
131,824
47,500
3-18

Total Assets

$ 923,087

3-19

Problem 3-8 (continued)

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable
Income Tax Payable
Notes Payable
Total Current Liabilities
Bonds Payable
Total Liabilities
Stockholders Equity:
Noncontrolling Interest in Subsidiaries
Common Stock
Other Contributed Capital
Retained Earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

$25,000
40,000
4,000
$ 69,000
100,000
169,000
17,287
434,000
172,800
130,000
754,087
$ 923,087

Problem 3-9
Part A
Computation and Allocation of Difference Schedule
Parent
NonTotal
Share Controlling Value
Share
Purchase price and implied value
$5,800,000 644,4446,444,444*
Less: Book value of equity acquired:
Common stock (5,250,000 x .90)4,725,000 525,0005,250,000
Other contributed capital
356,400
39,600 396,000
Retained earnings
1,732,500 192,500 1,925,000
Less: Treasury stock
(1,080,000) (120,000)(1,200,000)
Totalbook value
5,733,900 637,100 6,371,000
Difference between implied and book value
Plant assets
(66,100)
Balance
-0*$5,800,000/.90

3-20

66,100
(7,344)
-0-

7,344 73,444
(73,444)
-0-

Problem 3-9 (continued) Pope Company and Subsidiary Worksheet, January 1, 2009
Part B
Pope
Sun
Eliminations
NoncontrollinConsolidate
Company Company
g
d
Debit
Credit
Cash
297,000 165,000
462,000
Accounts Receivable
432,000 468,000
900,000
Notes Receivable
90,000
(1)
Inventory
1,980,000 1,447,000
3,427,000
Investment in Sun
5,800,000
(2)
Difference between
& Book Value
(2)
(3)
Plant and Equipment
5,730,000 3,740,000
(3)
9,543,444
Land
1,575,000 908,000
2,483,000
Total
$15,904,00$6,728,00
$16,815,44
Accounts Payable
Notes Payable
Common Stock ($15
Pope Company
Sun Company
Other Contributed
Pope Company
Sun Company
Treasury Stock Held:
Sun Company
Retained Earnings
Pope Company
Sun Company
Noncontrolling Interest
Total

698,000
2,250,000

247,000
110,000

945,000
2,270,000

(1)

4,500,000

4,500,000
5,250,000 (2)5,250,0

5,198,000

5,198,000
396,000

(2)

(1,200,00

(2)1,200,0

3,258,000

3,258,000
1,925,000 (2)1,925,0

$15,904,00 $6,728,00 7,807,888

(2) 644,444
7,807,8
88

(1) To eliminate intercompany note receivable and note payable

(2) To eliminate Investment in Sun Company and create noncontrolling interest account
(3) To allocate the difference between implied and book value to subsidiary plant and equipment.

3-21

644,444
$16,815,44

Problem 3-10A
Part A Investment in Shah Company ($28 25,500) 714,000
Common Stock ($225,500)
51,000
Other Contributed Capital ($2625,500)
663,000
Part B Common Stock - S
120,000
Other Contributed Capital - S
164,000
1/1 Retained Earnings - S
267,000
Difference between Implied and Book Value 289,000*
Investment in Shah Company
714,000
Noncontrolling Interest [($714,000/.85) x .15]
126,000
* ($714,000/.85) ($120,000 + $164,000 + $267,000)
Inventory
28,000
Land
33,500
Plant Assets
100,000
Patents
105,000
Deferred Tax Asset
21,000
Goodwill
154,775*
Premium on Bonds Payable
60,000
Deferred Tax Liability ($266,500 x .35)
93,275
Difference between Implied and Book Value
289,000
* ($289,000 +60,000-21,000) [($28,000 + $33,500 + $100,000 +
$105,000) ]

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