Blue Corporation acquired controlling ownership of Skyler Corporation on Decembe
ID: 2549199 • Letter: B
Question
Blue Corporation acquired controlling ownership of Skyler Corporation on December 31, 20X3, and a consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X3, Blue provided engineering services to Skyler and has not yet been paid for them. There were no other receivables or payables between Blue and Skyler at December 31, 20X3.
What is the amount of unpaid engineering services at December 31, 20X3, on work done by Blue for Skyler?
What balance in accounts receivable did Skyler report at December 31, 20X3?
What amounts of wages payable did Blue and Skyler report at December 31, 20X3?
What was the fair value of Skyler as a whole at the date of acquisition?
What percentage of Skyler’s shares were purchased by Blue?
What amounts of capital stock and retained earnings must be reported in the consolidated balance sheet?
BLUE CORPORATION AND SKYLER CORPORATION Balance Sheet Data December 31, 20X3 Item Blue Corporation Skyler Corporation Consolidated Entity Assets Cash $ 63,650 $ 35,000 $ 98,650 Accounts Receivable 98,000 ? 148,000 Inventory 105,000 80,000 195,000 Buildings & Equipment 400,000 340,000 640,000 Less: Accumulated Depreciation (215,000 ) (140,000 ) (215,000 ) Investment in Skyler Corporation Stock ? Goodwill 9,000 Total Assets $ 620,000 $ 380,000 $ 875,650 Liabilities & Equities Accounts Payable $ 115,000 $ 46,000 $ 146,000 Wages Payable ? ? 94,000 Notes Payable 200,000 110,000 310,000 Common Stock 120,000 75,000 ? Retained Earnings 115,000 125,000 ? Noncontrolling Interest 90,650 Total Liabilities & Equities $ ? $ 380,000 $ 875,650
Explanation / Answer
Answer to part a) Amount of unpaid engineering services at December 31, 20X3, on work done by Blue for Skyler can be calculated by two alternative ways:
1) by calculating differance between consolidated Accounts Payable vis a vis total of individual Acounts Payable as it is mentioned that there is no other receivables or payables between Blue and Skyler at December 31, 20X3.
Calculations: 115,000+46,000-146,000 = 15,000
2) by calculating balancing figure of Assets side of Skyler Corporation Balance Sheet, we will get the Accounts Receivable for Skyler Corporation. Then, by calculating differance between consolidated Accounts Receivable vis a vis total of individual Acounts Receivable, we will get the answer.
Calculations: i) Accounts Receivable of Skyler Corporation: 380,000-(35,000+80,000+340,000-140,000) = 65,000
ii) Amount of unpaid engineering services: 98,000+65,000-148,000 = 15,000
Answer to part b): See calculations in alternative 2 of above answer
Answer to part c): Calculate using balance figure of Liabilities & Equities side of both balance sheets:
1) Wages payable by Blue Corporation: 620,000**-(115,000+200,000+120,000+115,000) = 70,000
**Please note total assets = totals liabilities & equities for Blue corporation. Therefore, total liabilities and equities would be 620,000 as total assets are 620,000
2) Wages payable by Skyler Corporation: 380,000-(46,000+110,000+75,000+125,000) = 24,000
Answer to part d): Fair value at the time of aquisition = Investment made - Goodwill
Investment made can be calculated using balance figure of Assets side of Blue Corporation Balance Sheet:
620,000-(63,650+98,000+105,000+400,000-215,000) = 168,350
Therefore, fair value at the time of aquisition (for shareholding of Blue Corporation) = 168,350 - 9,000 = 159,350
Therefore, fair value at the time of aquisition as a whole = fair value for Blue Corporation Share / % Shareholding
= 159,350/54.675%*** = 291,450 approx.
***see this calculation in part e below.
Answer to part e): Non-controlling interest is given as 90,650 vis a vis 200,000 of net assets of Skyler Corporation. Therefore, non controlling interest in % is 90,650/200,000 = 45.325%.
Therefore, percentage of Skyler's shares purchased by Blue = 100 - 45.325 = 54.675%
Answer to part f): Consolidated balance sheet must report Capital Stock and Retained Earnings of Holding Compnany (i.e. Blue Corporation) only. Therefore Common Stock of 120,000 and Retained Earnings of 115,000 would be reported.
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