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Consolidation of an International Subsidiary at Date of Acquisition

Fairview Corporation, a U.S. company, has a wholly-owned subsidiary in Mexico. The subsidary's functional currency is the Mexican peso, and translation to U.S. dollars is appropriate. The subsidiary was acquired for $10,800,000. The balance sheet of the subsidiary on the date of acquisition is as follows:

Mexican Subsidiary Balance Sheet at Date of Acquisition
Assets
Cash and receivables	P9,000,000
Inventories	21,000,000
Noncurrent assets, net	45,000,000
Total assets	P75,000,000
Liabilities and stockholders' equity
Liabilities	P15,000,000
Capital stock	48,000,000
Retained earnings	12,000,000
Total liabilities and stockholders' equity	P75,000,000

The fair values of the subsidiary's inventories are P30,000,000, and the fair values of the subsidiary's noncurrent assets are 42,000,000. All other amounts are reported at approximate fair value. The exchange rate at the date of acquisition is $0.10/peso.

Present a schedule showing the calculation of goodwill for the acquisition, in U.S. dollars, and the entries necessary to consolidate the balance sheets of Fairview and its subsidiary at the date of acquisition.

Instructions:

• Enter all your answers below in thousands. For example, P108,000,000 equals P108,000 in thousands.
• Do not use negative signs with any of your answers below.

Calculation of goodwill (in thousands)
	P	$/P	U.S.$
Price Paid	Answer	Answer	Answer
Book value	Answer	Answer	Answer
Undervaluation of inventories	Answer	Answer	Answer
Overvaluationof noncurrent assets	Answer	Answer	Answer
Goodwill	Answer		Answer

Enter answers in thousands.

ConsolidationJournal
Description	Debit	Credit
(E)
AnswerInvestment in subsidiaryInventoriesCapital stockCash	Answer	Answer
Retained earnings	Answer	Answer
AnswerCashCapital stockInvestment in subsidiaryInventories	Answer	Answer
(R)
AnswerInventoriesCashCapital stockInvestment in subsidiary	Answer	Answer
Goodwill	Answer	Answer
Noncurrent Assets	Answer	Answer
AnswerCapital stockCashInvestment in subsidiaryInventories	Answer	Answer

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