41. On January 1, 2014, Allan Company bought a 15 percent interest in Sysinger C

Question

41. On January 1, 2014, Allan Company bought a 15 percent interest in Sysinger Companu acquisition price of $184,500 reflected an assessment that all of Sysinger's accounts valued within the company's accounting records. During 2014, Sysinger reported net S100,000 and declared cash dividends of S30,000. Allan possessed the ability to influence s cantly Sysinger's operations and, therefore, accounted for this investment using the equit ere fa of signifi- od pro- On January 1, 2015, Allan acquired an additional 80 percent interest in Sysinger and $1,400,000 262,500 87,500 $1,750,000 vided the following fair-value assessments of Sysinger's ownership components: Consideration transferred by Allan for 80% interest Fair value of Allan's 15% previous ownership . . . . . . . . . . . . . . Noncontrolling interest's 5% fair value Total acquisition-date fair value for Sysinger Company.. Also, as of January 1, 2015, Allan assessed a S400,000 value to an unrecorded cust con- ct recently negotiated by Sysinger. The customer contract is anticipated to have a re life of 4 years. Sysinger's other assets and liabilities were judged to have fair values equal to their book values. Allan elects to continue applying the equity method to this investment for At December 31, 2015, the following financial information is available for consolidation: Sysinger internal reporting purposes. Allan Company Company Revenues Operating expenses . Equity earnings of Sysinger . Gain on revaluation of Investment in Sysinger to fair value $ (931,000) (380,000) 230,000 615,000 (47,500) (67,500) 431,000 150,000 Net income continue

Explanation / Answer

a) Fair value of Sysinger 1/1/15 (given)          1,750,000 Book value of Sysinger 1/1/15 (CS + APIC + RE)          1,300,000 Excess fair value over book value              450,000 To customer contract (4 year life)              400,000 To Goodwill                50,000 b) Equity in earnings of Sysinger 2014 income (150,000×95%) 142500 Amortization (100000*95%) 95000 Equity in earnings of Sysinger 47500 Revaluation of 15% block to fair value Consideration transferred 184500 2014 Income (100,000×15) 15000 2014 dividends (30,000×15%) -4500 Book value at 1/1/15 195000 Fair value at 1/1/15 262500 Gain on revaluation 67500 Investment account balance 12/31/15 Fair value at 1/1/15 (15% block) 262500 Consideration transferred 1/1/15 (80% block) 1400000 Equity earnings 2015 2015 income (95%×150,000)                 142500 Customer contract amortization         -95000 47500 Dividends 2015 (40,000×95%) -38000 Investment in Sysinger 12/31/15 1672000 Allan and Sysinger Consolidation Worksheet For Year Ending December 31, 2015 Accounts Allan Sysinger Company Consolidated Entries Debit Credit Totals Revenues       (931,000)       (380,000) (1,311,000) Operating expenses         615,000         230,000          100,000         945,000 Equity earnings of sysinger         (47,500)            47,500 Gain on revaluation         (67,500)         (67,500) Separate company net income       (431,000)       (150,000) Consolidated Net Income       (433,500) NCI in Sysinger's income     (2,500)              2,500 Allan's share of CNI       (431,000) Retained earnings 1/1       (965,000)       (600,000)          600,000       (965,000) Net Income       (431,000)       (150,000)       (431,000) Dividends paid         140,000           40,000          38,000        2,000         140,000 Retained earnings 12/31 (1,256,000)       (710,000) (1,256,000) Current Assets         288,000         540,000         828,000 Investment in sysinger     1,672,000                     -              38,000    1,235,000          47,500       427,500 Property plant and equipment         826,000         590,000     1,416,000 Patented technology         850,000         370,000     1,220,000 Customer contract                     -                       -            400,000       100,000         300,000 Goodwill                     -              50,000           50,000 Total assets     3,636,000     1,500,000     3,814,000 Liabilities (1,300,000)         (90,000) (1,390,000) Common Stock       (900,000)       (500,000)          500,000       (900,000) Additional paid-in capital       (180,000)       (200,000)          200,000       (180,000) Retained earnings 12/31 (1,256,000)       (710,000) (1,256,000) NCI Sysinger 1/1                     -                       -            65,000          22,500 (87,500) NCI Sysinger 12/31 (88,000)         (88,000) Toatl liabilities and stockholder's equity (3,636,000) (1,500,000)      1,935,500    1,935,500 (3,814,000)

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