Problem 2-1 (LO 3, 4, 5, 6) 100% purchase, goodwill, consolidated balance sheet.

Question

Problem 2-1 (LO 3, 4, 5, 6) 100% purchase, goodwill, consolidated balance sheet. On July 1, 2016, Roland Company exchanged 18,000 of its $45 fair value ($1 par value) shares for the outstanding shares of Downes Company. Roland paid acquisition costs of $40,000. The two companies had the following balance sheets on July 1, 2016: Assets Roland Downes Inventory Land Building (net) Equipment (net). $50,000 120,000 100,000 300,000 430,000 $1,000,000 70,000 60,000 40,000 120,000 110,000 $400,000 . Liabilities and Equity $180,000 40,000 360,000 420,000 $1,000,000 $ 60,000 20,000 180,000 140,000 $400,000 Current liabilities Paid-in capital in excess of par Retained earnings... Total liabilities and equity .. The following fair values applied to Downes's assets: 70,000 80,000 90,000 150,000 100,000 Inventory Land Equipment. .

Explanation / Answer

Problem 2-2 1) Accounts and Explanation Debit Credit Investment in Downes Company (14000 shares x $45) $630,000.00 Common Stock ($1 par) $14,000.00 Paid-In Capital in Excess of Par ($630,000 – $14,000 par) $616,000.00 Acquisition Expense $40,000.00 Cash $40,000.00 2) Value Analysis Schedule Company Implied fair value Parent Price 80% NCI 20% Company fair value = ($630,000/80%) $787,500.00 $630,000.00 $157,500.00 Fair value of net assets excluding good?ill (70000+80000+90000+150000+100000-60000 $430,000.00 $344,000.00 $86,000.00 Goodwill $357,500.00 $286,000.00 $71,500.00 Determination and Distribution of Excess Schedule Company Implied fair value Parent Price 80% NCI 20% Fair value of subsidiary $787,500.00 $630,000.00 $157,500.00 Less: book value of interest acquired Common Stock $20,000.00 $20,000.00 Paid in excess of Par $180,000.00 $180,000.00 Retained earnings $140,000.00 $140,000.00 Total Equity $340,000.00 $340,000.00 $340,000.00 Interest acquired 80.00% 20.00% Book Value $272,000.00 $68,000.00 Excess of fair value over book value ($787,500 - $430,000) $447,500.00 $358,000.00 $89,500.00 3) Roland Company and Subsidiary Downes Company Consolidated Balance Sheet July 1, 2016 Assets Current Assets Other assets ($50000 + $70,000 - $40,000 (acquisition costs) $80,000.00 Inventory (/120000+60000+20000) D1 $200,000.00 $280,000.00 Long lived Assets Land (100000 + 40000 + 50000) D2 $190,000.00 Building (300000 + 120000 +30000) D3 $450,000.00 Equipment (430000 + 110000 - 10000) D4 $530,000.00 Goodwill $357,500.00 $1,527,500.00 Total Assets $1,807,500.00 Liabilities & Stockholders' Equity Current Liabilities (180000 + 60000) $240,000.00 Stockholders' Equity Common Stock (40,000 + 18000) $54,000.00 Paid in excess of Par ($360,000 + 792,000) $976,000.00 Non controlling Interest $157,500.00 Retained earnings ($420,000 - $40,000 acquisition costs $380,000.00 $1,567,500.00 Total Liabilities & Stockholders' equity $1,807,500.00 Working notes Adjustment of identifiable accounts: Inventory ($80,000 fair – $60,000 book value) $20,000.00 D1 Land ($90,000 fair – $40,000 book value) $50,000.00 D2 Building ($150,000 fair – $120,000 book value) $30,000.00 D3 Equipment ($100,000 fair – $110,000 book value) -$10,000.00 Goodwill $357,500.00 Total $447,500.00

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