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Advance Financial Accounting 2 Resumed by : Raudhatul Hidayah SE ME Ak JUR.

AKT FE UNAND Installment Acquisitions of Subsidiary A Parent company may obtain control of a subsidiary in a series of installment acquisitions of a subsidiarys common stock, rather than in a single transaction constituting a business combination. Such a combination is a purchase. Illustration of installment acquisition of parent companys controlling interest: Prinz Corporation February 25 acquired 9,500 share of Scarp Company s 10,000 share of outstanding $5 per common stock as follows: Date number of share method of payment carrying amount identifiable net asset Mar 1 year 2 1,000 10,000 cash 80,000 Mar 1 year 3 2,000 22.000 cash 85,000 Mar 1 year 4 6,500 28,000 cash 90.000 50,000, 15%, 5 years Totals 9,500 110,000 The investment cost $10,11,12 a share and the book value of shares $8, 8.5 and 9 Common stock ledger account $50,000, paid in capital 10,000 and retained earning: Retained earning Date explanation debit Credit Year 2 Mar 1 balance Year 3 Feb 10 Dividend declared $1 a share 10.000 Feb 28 net income 15.000 Year 4 Feb 17 Dividend declared $1 a share 10,000 Feb 28 net income 15.000 Parent company journal entries 1. To record 1,000 common stock Scarp company Year 2, Mar 1 Investment in Scarp Company common stock Cash 2. To record cash dividend Year 3 Feb 10 Cash Dividend revenue 3. To record acquisition 2,000 common stock Scarp company Year 3, Mar 1 Investment in Scarp Company common stock Cash 22,000 22,000 1,000 1,000 10,000 10,000

balance 20,000 cr

10,000 cr 25,000 cr

15,000 cr 30,000 cr

Advance Financial Accounting 2 Resumed by : Raudhatul Hidayah SE ME Ak JUR. AKT FE UNAND 4. To record retroactively accounting method from cost to equity Year 3, Mar 1 Investment in Scarp Company common stock Retained earning of investee 5. To record dividend declared Feb 17 year 4 Cash Investment in Scarp Company common stock 6. To Record share of Scarp companys net income for year ended Feb 28 year 4 Investment in Scarp Company common stock Investment income 7. To record amortization of goodwill Investment income Investment in Scarp Company common stock 8. To record acquisition of 6,500 share of Scarp company Investment in Scarp Company common stock Cash Notes payable Working paper for consolidated financial statement: Investment in Scarp Company common stock Date Year 2 Mar 1 Year 3 Mar 1 Mar 1 Year 4 Feb 17 Feb 28 Feb 28 Mar 1 Date Year 3 Mar 1 Year 4 explanation acquisition 1,000 share acquisition 2,000 share retroactive equity method debit 10.000 22.000 450 3,000 175 Credit balance 10.000 dr 32,000 dr 32,450 dr 29,450 dr 33,950 dr 33,775 dr 11,775 dr balance 450 cr 78,000 28,000 50,000 175 175 4,500 4,500 3,000 3,000 450 450

Dividend received share of net income 4,500 amortization of goodwill acquisition 6,500 share 78.000 Retained earning of subsidiary (investee) explanation debit retroactive equity method

Credit 450

Advance Financial Accounting 2 Resumed by : Raudhatul Hidayah SE ME Ak JUR. AKT FE UNAND Feb 28 closing entries 1,325 1,775 cr

Elimination: Common stock 50,000 Additional paid in capital 10,000 Retained earning 28,225 Retained earning of subsidiary(investee) 1,775 Goodwill 26,275 Investment in Scarp company common stock Minority interest in net asset of subsidiary Component of net goodwill: Installment acquisition of Less: carrying amount of Identifiable asset acquired Mar 1 year 2 (80,000 x 10% ) Mar 1 year 3 (85,000 x 20%) Mar 1 year 4 (90,000 x 65%) Goodwill(gross) Less: amortization over 40 years Year ended Feb 28 year 3 Year ended Feb 28 year 4 Goodwill net Mar 1year 4 Mar 1 year 2 10,000

111,775 4,500 Mar 1 year 3 22,000 Mar 1 year 4 78,000

8,000 17,000 2,000 (50) (50) 1,900 5,000 58,500 19,500

(125) 4,875

19,500

Prinz Corporation and subsidiary Working paper for consolidated balance sheet March 1 year 4 Prinz Corp Scarp Co Elimination Assets Current assets Investment in scarp company CS Plant assets Goodwill Total assets Liabilities and stockholders equity Current liabilities Long-term debt Minority in net assets of subsidiary Common stock $1 par Common stock $5 par Additional paid in capital Retained earnings Retained earning of subsidiary Total Liabilities and stockholders equity 400,000 111,775 1,200,000 1,711,775 200,000 800,000 150,000 350,000 210,000 1,775 1,711,775 50,000 10.000 30,000 300,000 (50,000) (10,000) (26,225) (1,775) 85,500 140,000 (111,775) 160,000 300,000 60,000 150,000 4,500 26,275 85,500

consolidated 540,000 1,360,000 26,275 1,926,275 260,000 950,000 4,500 150,000 350.000 211,775 1,926,275

Advance Financial Accounting 2 Resumed by : Raudhatul Hidayah SE ME Ak JUR. AKT FE UNAND

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