3. Prepare the 2015 consolidated income statement and it related income distribu

Question

3. Prepare the 2015 consolidated income statement and it related income distribution schedules.

pany on NMd used by the parent, Mast Curpul ise 3 (1O 2) Equity method, first year, eliminations, statements. Parker ures an 80% interest in Sargent Company for $300,000 in cash on January 1, Company acqui when Sargent Company has the following balance sheet: Liabilities and Equity Assets $ 50,000 100,000 150,000 $300,000 $100,000 Current liabilities Current assets Depreciable fixed assets (net) Common stock ($10 par). Retained earnings . 200,000 $300,000 Total liabilities and equity olal assets The excess of the price paid over book value is attributable to the fixed assets, which have a fair value of $250,000, and to goodwill. The fixed assets have a 10-year remaining life. Parker Company uses the simple equity method to record its investment in Sargent Company The following trial balances of the two companies are prepared on December 31, 2015 Parker 10,000 400,000 Sargent 130,000 200,000 Current Assets Depreciable Fixed Assets Accumulated Depreciation .. Investment in Sargent Company Current Liabilities Common Stock ($10 par] Retained Earnings, January 1, 2015 Sales Expenses Subsidiary Income.. (106,000)(20,000) 316,000 (60,000(40,000 (300,000(100,000 (200,000(150,000 75,000 (150,000 (100,000) 110,000 (20,000 5,000 0 Totals 0 1. Prepare a determination and distribution of excess schedule (a value analysis is not needed) for the investment. epare all worksheet. the eliminations and adjustments that would be made on the 2015 consolidated e the 2015 consolidated income statement and its related income distribution schedules. . Prepare the 2015 statement of retained earnings. 5. Prepare the 2015 consolidated balance sheet. Exercise a O

Explanation / Answer

4)

5)

1) Determination and Distribution of Excess Schedule Company Implied Fair Value Parent Price (80%) Non controlling Interest value (20%) Fair value of subsidiary $375,000 $300,000 $75,000 Less book value of interest acquired:        common Stock ($10 par) 100000        Retained Earnings 150000                    Total equity $250,000 $250,000 $250,000        Interest acquired 80% 20% Book Value $        2,00,000 $        50,000 Excess of fair value over book value $125,000 $100,000 $25,000 *$300,000/80% = $375,000 Adjustment of identifiable accounts: Adjustment Life Amortization per Year Fixed assets $50,000 10 $5,000 Goodwill 75000 Total $125,000 2) Date Accounts Debit Credit 1 Subsidiary Income $20,000        Investment in Sargent Company $20,000 (To eliminate parents share of subsidiary earnings for the current year) 2 Investment in Sargent Company ($5,000 x80%) $4,000      Dividend Declared $4,000 (To eliminate parents share of dividends fo the current year) 3 Common Stock-Sargent($100,000x80%) $80,000 Retained Earnings-Sargent($150,000x80%) $120,000      Investment in Sargent Company $200,000 (To eliminate pro rata share of the beginning of year Sargent equity balances) 4 Depreciable Fixed Assets $50,000 Goodwill $75,000       Investment in Sargent Company $100,000       Retained Earnings-Sargent(NCI adjustment $25,000 (To distribute excess per determination and distribution of excess schedule) 5 Depreciation Expenses $5,000      Accumulated Depreciation $5,000 (To amortize excess for the current year) 3) Parker Company and Sargent Company Consolidated Income Statement For Year Ended December 31,2015 Sales $250,000 Less expenses(add $5,000 adjustment) $190,000 Consolidated Income $60,000 Distributed to noncontrolling interest $4,000 Distributed to controlling interest $56,000

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