4. On January 1, 2017, Parent Corp. paid $1,710,000 cash to acquire 90% of the o
ID: 2801140 • Letter: 4
Question
4. On January 1, 2017, Parent Corp. paid $1,710,000 cash to acquire 90% of the outstanding common stock of Sub Inc. Sub Inc. book value was only $725,000 at the time. The recorded as of Sub Inc. were fairly valued at the date of the acquisition. However, Parent determined that Suu Inc. had developed a customer base with a fair value of $800,000 that was not reflected in the recorded assets. The customer base had a 10-year remaining life for amortization purposes. Following are the individual financial records for these two companies. December 31,2018 Accounts Parent Sub Cost of goods sold Depreciation expense Amortzabon expense Interest expense Equity in Sub Income Separate company net income (1,843,000 .100,000 125,000 275,000 27,500 (675,000) 322,000 120,000 11,000 7,000 (437,000) (215,000 Retained Eanings 1/1 Net Income Dividends pad Retained Eamings 12/31 (395,000 (215,000 25,000 85,000) 2,625,000) (437,000) 2712000) Current Asses Investment in Sub Buildings and Equipment 1204,000 1854,000 931,000 430,000 863,000 Total Assels 939.000 1.400,000 Accounts Pasble Notes Paysble Common Sock Additional Paid-in Capital Retained Eamings 1231 Total Liab. and SE 485,000) (542.000 (900,000 (300,000 (200,000) (155,000 (400 60,000) (585,000) 4,939,000) 1,400 The trial balances for each company are also presented in the attached worksheet a. Prepare the Schedule as of January 1, 2017. (3 pts) b. Prepare the consolidation worksheet for this business combination as of December 31. 2012, using the worksheet attached and recording all the worksheet entries, with correct labels, to presen the correct consolidated balances. (20 pts, including correct entries posted) Page 4 of 13Explanation / Answer
Solution:
a.
Adjustments
December 31, 2018
Parent
Sub
& Eliminations
NCI
Consolidated
Revenues
(1,843,000)
(675,000)
(2,518,000)
Cost of goods sold
1,100,000
322,000
1,422,000
Depreciation expense
125,000
120,000
245,000
Amortization expense
275,000
11,000
(E) 80,000
366,000
Interest expense
27,500
7,000
34,500
Equity in Sub Income
(121,500)
(I)121,500
-0-
Separate company
net income
(437,000)
(215,000)
Consolidated net income
(450,500)
To noncontrolling interest
(13,500)
(13,500)
To Parent Company
(437,000)
Retained Earnings 1/1
(2,625,000)
(395,000)
(S)395,000
(2,625,000)
Net Income
(437,000)
(215,000)
(437,000)
Dividends declared
350,000
25,000
(D) 22,500
2,500
350,000
Retained Earnings 12/31
(2,712,000)
(585,000)
(2,712,000)
Current Assets
1,204,000
430,000
1,634,000
Investment in Sub Income
1,854,000
(D) 22,500
(S)769,500
(A)985,500
-0-
(I) 121,500
Customer base
-0-
-0-
(A)720,000
(E) 80,000
640,000
Buildings and Equipment
931,000
863,000
1,794,000
Copyrights
950,000
107,000
1,057,000
Goodwill
(A)375,000
375,000
Total Assets
4,939,000
1,400,000
5,500,000
Accounts Payable
(485,000)
(200,000)
(685,000)
Notes Payable
(542,000)
(155,000)
(697,000)
NCI in Sub
(S) 85,500
(A)109,500
(195,000)
(206,000)
(206,000)
Common Stock
(900,000)
(400,000)
(S)400,000
(900,000)
Additional Paid-In Capital
(300,000)
(60,000)
(S) 60,000
(300,000)
Retained Earnings 12/31
(2,712,000)
(585,000)
(2,712,000)
Total Liab. and SE
(4,939,000)
(1,400,000)
2,174,000
2,174,000
(5,500,000)
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $190,000
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base) 1,372,500 152,500
Goodwill $337,500 $37,500
b. If the acquisition-date fair value of the noncontrolling interest was $167,500, both goodwill (NCI portion) and the noncontrolling interest balance would be reduced equally by $22,500 as follows:
Fair value of Sub Company (1,710,000 + 167,500) $1,877,500
Carrying amount acquired 725,000
Excess fair value 1,152,500
to customer base 800,000
to goodwill $352,500
Noncontrolling interest balance beginning of year* $(172,500)
Net income attributable to noncontrolling interest (13,500)
Dividends declared to noncontrolling interest 2,500
Noncontrolling interest end of year $(183,500)
* NCI at beginning of year
Common stock-subsidiary $400,000
APIC-subsidiary 60,000
Retained earnings-subsidiary 1/1 395,000
Total $855,000
Noncontrolling interest percentage 10%
Noncontrolling share of subsidiary book value 85,500
Noncontrolling share of 1/1 customer base excess 72,000
Noncontrolling share of goodwill (below) 15,000
Noncontrolling interest 1/1 $172,500
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $167,500
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base) 1,372,500 152,500
Goodwill $ 337,500 $15,000
Adjustments
December 31, 2018
Parent
Sub
& Eliminations
NCI
Consolidated
Revenues
(1,843,000)
(675,000)
(2,518,000)
Cost of goods sold
1,100,000
322,000
1,422,000
Depreciation expense
125,000
120,000
245,000
Amortization expense
275,000
11,000
(E) 80,000
366,000
Interest expense
27,500
7,000
34,500
Equity in Sub Income
(121,500)
(I)121,500
-0-
Separate company
net income
(437,000)
(215,000)
Consolidated net income
(450,500)
To noncontrolling interest
(13,500)
(13,500)
To Parent Company
(437,000)
Retained Earnings 1/1
(2,625,000)
(395,000)
(S)395,000
(2,625,000)
Net Income
(437,000)
(215,000)
(437,000)
Dividends declared
350,000
25,000
(D) 22,500
2,500
350,000
Retained Earnings 12/31
(2,712,000)
(585,000)
(2,712,000)
Current Assets
1,204,000
430,000
1,634,000
Investment in Sub Income
1,854,000
(D) 22,500
(S)769,500
(A)985,500
-0-
(I) 121,500
Customer base
-0-
-0-
(A)720,000
(E) 80,000
640,000
Buildings and Equipment
931,000
863,000
1,794,000
Copyrights
950,000
107,000
1,057,000
Goodwill
(A)375,000
375,000
Total Assets
4,939,000
1,400,000
5,500,000
Accounts Payable
(485,000)
(200,000)
(685,000)
Notes Payable
(542,000)
(155,000)
(697,000)
NCI in Sub
(S) 85,500
(A)109,500
(195,000)
(206,000)
(206,000)
Common Stock
(900,000)
(400,000)
(S)400,000
(900,000)
Additional Paid-In Capital
(300,000)
(60,000)
(S) 60,000
(300,000)
Retained Earnings 12/31
(2,712,000)
(585,000)
(2,712,000)
Total Liab. and SE
(4,939,000)
(1,400,000)
2,174,000
2,174,000
(5,500,000)
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