The "Investment in Little" account will be recorded at the fair value of the net assets acquired.

Before commencing, please note that this business combination contains a "bargain purchase". The "Investment in Little" account will be recorded at the fair value of the net assets acquired. When the "Non-controlling interest" account is created it, too, will be created at the proportionate share of the fair value of the net assets of Little Co.

On 1/1/01 Big acquired 70% of Little Co.'s voting stock for $280,000. The remaining 30% of Little's voting stock had a market value of $120,000. Little had a book value of $420,000 on that date, with all assets and liabilities having a book value equal to fair value. Little's owners' equity section was comprised of $100,000 of common stock and $320,000 of retained earnings. Little's stock was undervalued relative to the fair value of their net assets due to a general panic in the stock market.

Required for 6-3:

1. Record the purchase of Big's investment in Little

2. Prepare the elimination entry for consolidation at date of acquisition.