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The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July

ID: 2519853 • Letter: T

Question

The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 2015, when Seine had the following balance sheet:

Assets

Accounts receivable

$ 50,000

Inventory

120,000

Land

80,000

Building

270,000

Equipment

    80,000

     Total

$600,000

Liabilities and Equity

Current liabilities

$100,000

Common stock, $5 par

60,000

Paid-in capital in excess of par

140,000

Retained earnings (July 1)

300,000

     Total

$600,000

The inventory is understated by $20,000 and is sold in the third quarter of 2015. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.

From July 1 through June 30, 2016, Seine had net income of $100,000 and paid $10,000 in dividends.

Assume that Paris uses the equity method to record its investment in Seine.

Required:

a.

Prepare a determination and distribution of excess schedule as of July 1, 2015.

b.

Prepare the eliminations and adjustments that would be made on the June 30, 2016 consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess.

Determination and distribution of excess schedule as of July 1, 2015:

-------Do this in Excel-------

Elimination and Adjusting Entries as of June 30, 2016:

-------Do this in Excel--------

On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for $600,000. On this date Seaman had total owners' equity of $400,000. Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years.

During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method.

On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 20X2. Seaman's gross profit on all sales is 40%.

On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December.

Required:

Complete the worksheet similar to Figure 4-1 (following) for consolidated financial statements for the year ended December 31, 20X2. Prepare your worksheet in Excel. Following is a template in Figure 4-1 that will guide you in setting up your worksheet in Excel.

Assets

Accounts receivable

$ 50,000

Inventory

120,000

Land

80,000

Building

270,000

Equipment

    80,000

     Total

$600,000

Liabilities and Equity

Current liabilities

$100,000

Common stock, $5 par

60,000

Paid-in capital in excess of par

140,000

Retained earnings (July 1)

300,000

     Total

$600,000

Explanation / Answer

q1) a)

b)Eliminating entries:

Q2)PRANGE COMPANY

Eliminations and Adjustments:
(CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account.
(EL) Eliminate the Seaman Company equity balances at the beginning of the year against the investment account.
(D) Distribute the $200,000 excess of cost over book value to patent.
(A) Amortize the patent over 10 years, with $20,000 for 20X1 charged to retained earnings, and $20,000 for 20X2 to operating expenses.
(BI) Eliminate the $12,000 of gross profit in the beginning inventory.
(IS) Eliminate the entire intercompany sales of $100,000.
(EI) Eliminate the $8,000 of gross profit in the ending inventory.
(IA) Eliminate the $20,000 intercompany accounts receivable and payable.
DIF:M OBJ:4-2 MSC: 100%; simple equity

Company Implied Fair Value parent price NCI Value Fair Vlaue of subsidiary 750,000 600,000 150,000 Less:Book Value common stock 60,000 Paid in capital in excess of par 140,000 retained earnings 300,000 Total Equity 500,000 500,000 500,000 Interest Acquired 80% 20% Book Value 400,000 100,000 excess of fair over book 250,000 200,000 50,000 ADJUST IDENTIFIABLE ACCOUNTS: life amort/year Inventory 20,000(sold in 3rd quarter) Building 50,000 10 5,000 equipment 40,000 5 8,000 goodwill(balancing figure) 140,000 total 250,000
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