Thomas Inc. had the following stockholders\' equity accounts as of January 1, 20
ID: 2574755 • Letter: T
Question
Thomas Inc. had the following stockholders' equity accounts as of January 1, 2013:
Prefered stock-- $90 par non voting nonparticipating;
9% cumulative dividned $2,700,000
Common Stock -- $25 Par $5,600,000
Retained Earnings $14,000,000
Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2013, for $20,656,000. The preferred stock remained in the hands of outside parties and had a fair value of $3,060,000. A database valued at $656,000 was recognized and amortized over five years.
During 2013, Thomas reported earning $630,000 in net income and paid $504,000 in total cash dividends. Kuried used the equity method to account for this investment.
Requirements:
What is the amount of goodwill resulting from this acquisition?
What was the non-controlling interest's share of consolidated net income for the year 2013?
What is the controlling interest share of Thomas’ net income for the year ended December 31, 2013?
What was Kuried’s balance in the Investment in Thomas Inc. account as of December 31, 2013?
Prepare all consolidation entries for 2013.
Explanation / Answer
SOLUTION:
1) What is the amount of goodwill resulting from this acquisition?
Answer:
Consideration tfd for 100% interest in common stock
20,656,000
Non controlling interest in preferred stock
3,060,000
Total FV of Thomas
23,716,000
BV
22,300,000
Excess acquistion dae fair value over book value
1,416,000
Assigned to database
656,000
Goodwill
760,000
2) What was the non-controlling interest's share of consolidated net income for the year 2013?
Answer:
Preferred stock -Thomas Inc
2,700,000
Preferred dividend rate
0.09
Non-controlling interest's share of consolidated net income
243000
3) What is the controlling interest share of Thomas’ net income for the year ended December 31, 2013?
Answer:
Database
656000
Amortization period (in years)
5
Annual amortization of database
131200
Thomas net income (book)
630,000
Less: Amortization of database
-131200
498,800
Less: Amortization of database
-243000
Net income to common shareholders
255,800
(100% to Kuried as controlling interest)
4) What was Kuried’s balance in the Investment in Thomas Inc. account as of December 31, 2013?
Answer:
Database
656000
Amortization period (in years)
5
Annual amortization of database
131200
Aacquistion consideration
2,056,000
Equity accrual (630,000 - 243000)
387,000
Dividends collected (504,000 - 243000)
-261,000
Database amortization
-131,200
Investment in Thomas Inc.
20,650,800
5) Prepare all consolidation entries for 2013
Answer:
Consolidate entries-S and A
Dr. Common stock (Thomas Inc.)
5,600,000
Dr. Preferred stock (Thomas Inc.)
2,700,000
Dr. Retained earning
14,000,000
Dr. Database
656,000
Dr. Goodwill
760,000
Cr. Investment In Thomas Inc.
20,656,000
Cr. Non-controlling interest in Thomas Inc.
3,060,000
Consolidate entry I
Dr. Equity income of subsidiary
387,000
Cr. Investment in Thomas Inc.
387,000
Consolidate entry D
Dr. Investment in Thomas Inc.
261,000
Cr. Dividends paid
261,000
Consolidate entry E
Dr. Amortization expense
131,200
Cr. Database
131,200
Consideration tfd for 100% interest in common stock
20,656,000
Non controlling interest in preferred stock
3,060,000
Total FV of Thomas
23,716,000
BV
22,300,000
Excess acquistion dae fair value over book value
1,416,000
Assigned to database
656,000
Goodwill
760,000
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