Professional Documents
Culture Documents
CHAPTER 4
CONSOLIDATED FINANCIAL STATEMENTS
AND OUTSIDE OWNERSHIP
I.
II.
III.
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IV.
Step acquisitions
A. An acquiring company may make several different purchases of a subsidiary's stock
in order to gain control
B. Upon attaining control, all of the parents previous investments in the subsidiary are
adjusted to fair value and a gain or loss recognized as appropriate
C. Upon attaining control, the valuation basis for the subsidiary is established at its
total fair value (the sum of the fair values of the controlling and noncontrolling
interests)
Vl.
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Answers to Questions
1.
2.
$220,000 (fair value). Under the acquisition method, all assets acquired and liabilities
assumed in a business combination are recorded at their acquisition-date fair values.
3.
A control premium is the portion of an acquisition price (above currently traded market
values) paid by a parent company to induce shareholders to sell a sufficient number of
shares to obtain control. The extra payment typically becomes part of the goodwill
acquired in the acquisition attributable to the parent company.
4.
5.
6.
Allsports should remove the pre-acquisition revenues and expenses from the
consolidated totals. These amounts were earned (incurred) prior to ownership by
Allsports and therefore should are not earnings for the current parent company owners.
7.
Following the second acquisition, consolidation is appropriate. Once Tree gains control,
the 10% previous ownership is included at fair value as part of the total consideration
transferred by Tree in the acquisition.
8.
When a company sells a portion of an investment, it must remove the carrying value of
that portion from its investment account. The carrying value is based upon application
of the equity method. Thus, if either the initial value method or the partial equity method
has been used, Duke must first restate the account to the equity method before
recording the sales transaction. This same method is also applied to the operations of
the current period occurring prior to the time of sale.
9.
Unless control is surrendered, the acquisition method views the sale of subsidiary's
stock as a transaction with its owners. Thus, no gain or loss is recognized. The
difference between the sale proceeds and the carrying value of the shares sold (equity
method) is accounted for as an adjustment to the parents additional paid in capital.
10.
The accounting method choice for the remaining shares depends upon the current
relationship between the two firms. If Duke retains control, consolidation is still required.
However, if the parent now can only significantly influence the decision-making
process, the equity method is applied. A third possibility is Duke may have lost the
power to exercise even significant influence. The fair value method then is appropriate.
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Answers to Problems
1. C
2. D At the date control is obtained, the parent consolidates subsidiary assets
at fair value ($500,000 in this case) regardless of the parents percentage
ownership.
3. D In consolidating the subsidiary's figures, all intra-entity balances must be
eliminated in their entirety for external reporting purposes. Even though
the subsidiary is less than fully owned, the parent nonetheless controls it.
4. C An asset acquired in a business combination is initially valued at 100%
acquisition-date fair value and subsequently amortized over its useful life.
Patent fair value at January 1, 2012................................................
Amortization for 2 years (10 year life).............................................
Patent reported amount December 31, 2013..................................
$45,000
(9,000)
$36,000
5. C
6. B Combined revenues......................................................................... $1,100,000
Combined expenses......................................................................... (700,000)
Excess acquisition-date fair value amortization...........................
(15,000)
Consolidated net income................................................................. $385,000
Less: noncontrolling interest ($85,000 40%)..............................
(34,000)
Consolidated net income to controlling interest........................... $351,000
7. C Consideration transferred by Pride.................................................
Noncontrolling interest fair value....................................................
Star acquisition-date fair value........................................................
Star book value.................................................................................
Excess fair over book value.............................................................
to equipment (8 year remaining life)............................
to customer list (4 year remaining life)........................
$ 80,000
100,000
Combined revenues..........................................................................
Combined expenses...................................................... $545,000
Excess fair value amortization.....................................
35,000
Consolidated net income.................................................................
$540,000
60,000
$600,000
420,000
$180,000
Amort.
$10,000
25,000
$35,000
$783,000
580,000
$203,000
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$150,000
360,000
50,000
$560,000
500,000
$ 60,000
$165,000
72,000
$237,000
11. C
$86,000
40%
$34,400
$200,000
52,000
(11,200)
$240,800
$260,000
200,000
60,000
(12,000)
$508,000
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$75,000
(50,000)
$25,000
$70,000
20,000
15,000
$105,000
$90,000
40,000
10,000
$140,000
19. B Add the two book values and include 10% (the $6,000 current portion) of
the loan taken out by Park to acquire Strand.
20. B Add the two book values and include 90% (the $54,000 noncurrent portion)
of the loan taken out by Park to acquire Strand.
21. C Park stockholders' equity................................................................
Noncontrolling interest at fair value (20% $75,000)...................
Total stockholders' equity................................................................
22.
$80,000
15,000
$95,000
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6,200
(3,000)
78,200
8,200
(3,000)
$83,400
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$1,000,000
(50,000)
$ 950,000
b. Harlans building:
Acquisition-date fair value (10 year remaining life)
2013 depreciation:
On Harlans books ($195,000 10 years)
$19,500
Depreciation of acquisition-date fair value allocation
($150,000 10 years)
15,000
Building 12/31/13
c. Controlling interest in combined entity net income:
Pepper Enterprises separate net income
Harlans reported net income
Excess fair value amortization:
Technology processes
Building ($345,000 $195,000) 10 years
Harlans adjusted net income
Peppers ownership percentage
Controlling interest in combined entity net income
d. Noncontrolling interest in Harlans net income:
Harlans reported net income
Excess fair value amortization:
Technology processes
Building ($345,000 $195,000) 10 years
Harlans adjusted net income
Noncontrolling interest percentage
Noncontrolling interest in Harlans net income
$345,000
(34,500)
$310,500
$700,000
350,000
(50,000)
(15,000)
285,000
80%
228,000
$928,000
350,000
(50,000)
(15,000)
285,000
20%
$57,000
e. Noncontrolling interest:
Acquisition-date balance 1/1/13
Total Harlan fair value ($3,000,000 80%)
$3,750,000
Noncontrolling interest percentage
20%
Noncontrolling interest acquisition-date fair value
$750,000
Noncontrolling interest in Harlans net income
57,000
Noncontrolling interest share of Harlan dividends (20% $50,000)
(10,000)
Noncontrolling interest 12/31/13
$ 797,000
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24. (40 minutes) (Several valuation and income determination questions for a
business combination involving a noncontrolling interest.)
a. Business combinations are recorded generally at the fair value of the
consideration transferred by the acquiring firm plus the acquisition-date fair
value of the noncontrolling interest.
Pattersons consideration transferred ($31.25 80,000 shares).......... $2,500,000
Noncontrolling interest fair value ($30.00 20,000 shares).................
600,000
Sorianos total fair value January 1...................................................... $3,100,000
b. Each identifiable asset acquired and liability assumed in a business
combination is initially reported at its acquisition-date fair value.
c. In periods subsequent to acquisition, the subsidiarys assets and liabilities are
reported at their acquisition-date fair values adjusted for amortization and
depreciation. Except for certain financial items, they are not continually
adjusted for changing fair values.
d. Sorianos total fair value January 1...................................................... $3,100,000
Sorianos net assets book value........................................................... 1,290,000
Excess acquisition-date fair value over book value........................... $1,810,000
Adjustments from book to fair values..................................................
Buildings and equipment.......................................... (250,000)
Trademarks.................................................................
200,000
Patented technology.................................................. 1,060,000
Unpatented technology.............................................
600,000
1,610,000
Goodwill
............................................................................................ $ 200,000
e. Combined revenues............................................................................... $4,400,000
Combined expenses............................................................................... (2,350,000)
Building and equipment excess depreciation.....................................
50,000
Trademark excess amortization............................................................
(20,000)
Patented technology amortization........................................................
(265,000)
Unpatented technology amortization................................................... (200,000)
Consolidated net income....................................................................... $1,615,000
To noncontrolling interest:
Sorianos revenues........................................................................... $1,400,000
Sorianos expenses.......................................................................... (600,000)
Total excess amortization expenses (above)................................ (435,000)
Sorianos adjusted net income........................................................ $ 365,000
Noncontrolling interest percentage ownership.............................
20%
Noncontrolling interest share of consolidated net income......... $ 73,000
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24. (continued)
To controlling interest:
Consolidated net income................................................................. $1,615,000
Noncontrolling interest share of consolidated net income.........
(73,000)
Controlling interest share of consolidated net income................ $1,542,000
-ORPattersons revenues........................................................................ $3,000,000
Pattersons expenses....................................................................... 1,750,000
Pattersons separate net income..................................................... $1,250,000
Pattersons share of Sorianos adjusted net income
(80% $365,000).....................................................................
292,000
Controlling interest share of consolidated net income................ $1,542,000
f. Fair value of noncontrolling interest January 1.................................. $ 600,000
Current year income allocation.............................................................
73,000
Dividends (20% $30,000).....................................................................
(6,000)
Noncontrolling interest December 31.................................................. $ 667,000
g. If Sorianos acquisition-date total fair value was $2,250,000, then a bargain
purchase has occurred.
Collective fair values of Sorianos net assets..................................... $2,900,000
Sorianos total fair value January 1...................................................... $2,250,000
Bargain purchase................................................................................... $ 650,000
The acquisition method requires that the subsidiary assets acquired and
liabilities assumed be recognized at their acquisition date fair values
regardless of the assessed fair value. Therefore, none of Sorianos identifiable
assets and liabilities would change as a result of the assessed fair value.
When a bargain purchase occurs, however, no goodwill is recognized.
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445,000
415,000
30,000
$1,630,000
340,000
(40,000)
(150,000)
1,780,000
0.25
$ 445,000
415,000
$ 30,000
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$594,000
(400,000)
$194,000
Annual Excess
Life Amortizations
140,000 5 years
$28,000
10,000
30,000 10 years
3,000
14,000
-0$31,000
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27.
$60,000
(10,000)
50,000
40,000 10 = $4,000 per year
$10,000 4 = 2,500 per year
$6,500 per year
Consolidated figures:
$24,000
9,400
(2,000)
$31,400
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Goodwill allocation:
Parflex
Acquisition-date fair value
$344,000
Share of identifiable net assets ($324,000 + $18,000) 307,800
Goodwill allocation
$36,200
NCI
$36,000
34,200
$1,800
b. Investment in Eagle
Initial value
$344,000
Change in Eagles RE (date of acquisition to 1/1/13):
($278,000 $174,000) 90%
93,600
Excess fair value amortization (two prior years)
(3,600)
Equity income 2013 (below)
79,200
Eagle 2013 dividends 90%
(24,300)
Investment in Eagle 12/31/13
$488,900
Equity in Eagles earnings:
Eagles reported 2013 income
Excess equipment amortization
Adjusted net income
Parflex ownership share
Equity in Eagles earnings
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(2,000)
$88,000
90%
$79,200
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28. continuedpart c.
December 31, 2013
Eagle
(862,000)
(366,000)
(1,228,000)
515,000
209,000
724,000
Depreciation expense
191,200
67,000
(79,200)
(235,000)
(90,000)
Sales
Adjustments
E
I
NCI
Consolidate
d
Parflex
2,000
260,200
79,200
(243,800)
to noncontrolling interest
(8,800)
to parent
8,800
(235,000)
(500,000)
(278,000)
(235,000)
(90,000)
130,000
27,000
(605,000)
(341,000)
(605,000)
135,000
82,000
217,000
Inventory
255,000
136,000
Investment in Eagle
488,900
Dividends paid
Retained earnings, 12/31
964,000
328,000
Goodwill
Total assets
S 278,000
(500,000)
(235,000)
24,300
2,700
130,000
391,000
D
24,300
A1
14,000
A2
38,000
385,200
12,600
A1
36,200
A2
79,200
2,000
-0-
1,304,000
38,000
1,842,900
546,000
1,950,000
Liabilities
(722,900)
(55,000)
(777,900)
Common stock
(515,000)
(150,000)
S 150,000
NCI 1/1
(515,000)
42,800
1,400
A1
1,800
A2
NCI 12/31
Retained earnings, 12/31
Total liabilities and equities
(46,000)
52,100
(605,000)
(341,000)
(1,842,900)
(546,000)
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(605,000)
585,500
585,500
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$800,000
b. Revaluation gain:
1/1 equity investment in Amsterdam (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment at 6/30 (25% $800,000)
Gain on revaluation to fair value
$178,000
8,750
186,750
200,000
$ 13,250
c. Goodwill at 12/31:
Fair value of Amsterdam at 6/30
Book value at 6/30 (700,000 + [70,000 2])
Excess fair value
Allocation to goodwill (no impairment)
$800,000
735,000
$ 65,000
$ 65,000
d. Noncontrolling interest:
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Noncontrolling interest 12/31
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1,750
(1,000)
$40,750
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$1,119,650
1/7
$159,950
191,000
$ 31,050
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31.
6,000
Entry P
Accounts Payable ............................................ 22,000
Accounts Receivable .................................
(To eliminate intra-entity payable/receivable balance)
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31. (continued)
b. If the initial value method had been applied, the parent would have
recorded only the dividends received as income rather than an equity
accrual. Therefore, Entry *C is needed to adjust the parent's beginning
retained earnings for 2013 to the equity method. During 2011 and 2012,
the subsidiary earned a total net income of $171,000 but paid dividends
of only $83,000. The parent's share of the difference is $61,600 (70% of
$88,000 [$171,000 - $83,000]). In addition, the parents 70% share of
excess amortization expense for two years must also be included
($8,400 = 2 years $6,000 per year 70%). The net amount to be
recognized is $53,200 ($61,600 - $8,400).
ENTRY *C
Investment in Bandmor ...................................
Retained Earnings, 1/1/13 .........................
53,200
53,200
c. If the partial equity method had been applied, only the excess
amortization expenses for the previous two years would have been
omitted from the parent's retained earnings. As shown above, that
figure is $8,400 (2 years $6,000 per year 70%).
ENTRY *C
Retained Earnings, 1/1/13 ...............................
Investment in Bandmor .............................
8,400
8,400
$31,200
$27,000
(13,200)
$31,200
(18,000)
13,800
13,200
$246,000
OR
Worksheet adjustment S......................................................
Worksheet adjustment A......................................................
2013 income to noncontrolling interest ............................
2013 dividends to noncontrolling interest ........................
Noncontrolling interest in Bandmor 12/31/13....................
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62,400
31,200
(18,000)
$246,000
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32.
$664,000
166,000
$830,000
(600,000)
230,000
Annual Excess
Life Amortizations
80,000
20 years
$4,000
Goodwill ...................................................... $150,000 indefinite
Total.......................................................
-0$4,000
300,000
90,000
210,000
480,000
120,000
80,000
150,000
184,000
46,000
$56,000
(3,200)
$52,800
$56,000
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32. (continued)
e. (1) Equity method
Initial fair value paid................................................ $664,000
Income accrual 20112013 ($260,000 80%) ...... 208,000
Dividends 20112013 ($45,000 80%) ................. (36,000)
Excess Amortizations 20112013 ($3,200 3) ....
(9,600)
Investment in Taylor12/31/13 ....................... $826,400
(2) Partial Equity Method
Investment in Taylor12/31/13 = $836,000 (initial value paid plus
income accrual of $208,000 less dividends of $36,000 [no excess
amortizations])
(3) Initial Value Method
Investment in Taylor12/31/13 = $664,000 (original value paid)
f. Using the acquisition method, the allocation will be the total difference
($80,000) between the buildings' book value and fair value. Based on a
20 year life, annual excess amortization is $4,000.
Miller book valuebuildings ............................... $800,000
Taylor book valuebuildings ..............................
300,000
Allocation ...............................................................
80,000
Excess amortizations for 20112012 ($4,000 2)
(8,000)
Consolidated buildings account ............. $1,172,000
g. Acquisition-date fair value allocated to goodwill
(see schedule 1 above) ................................... $150,000
h. If the parent has been applying the equity method, the stockholders'
equity accounts on its books will already represent consolidated totals.
The common stock and additional paid-in capital figures to be reported
are the parent balances only. As to retained earnings, the equity method
will properly record all subsidiary income and amortization so that the
parent balance is also a reflection of the consolidated total.
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33.
$1,400,000
$120,000
(20,000)
$100,000
50,000
$1,450,000
$1,050,000
540,000
265,000
$245,000
$9,000
(1)
(2)
(3)
(4)
Trademarks = $935,000 (add the two book values and the excess fair
value allocation after taking one-half year excess amortization)
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34.
$414,000
276,000
$690,000
550,000
$140,000
Annual Excess
Life Amortizations
6 years
$10,000
4 years
(5,000)
10 years
10,000
$15,000
c. If the equity method had been applied, the Investment Income account
would show the basic equity accrual less amortization: 60% of (the
subsidiary's income of $90,000 less $15,000 excess fair value
amortization) = $45,000.
d. The initial value method recognizes neither the increase in the
subsidiary's book value nor the excess amortization expenses for prior
years. At the acquisition date, the subsidiarys book value was $550,000
as indicated by the assets less liabilities. At the beginning of the current
year, the book value of the subsidiary is $780,000 as indicated by
beginning stockholders' equity balances.
Increase in book value during prior years
($780,000 $550,000)............................................................
Less excess amortization ..........................................................
Net increase in book value.........................................................
Ownership ...................................................................................
Increase required in parent's retained earnings, 1/1/13 .........
Parent's retained earnings, 1/1/13 as reported .......................
Parents share of consolidated retained earnings, 1/1/13.......
e. Consolidated net income and allocation
Revenues (add book values)
Expenses (add book values and excess amortization)
Consolidated net Income
Noncontrolling interest in consolidated net income
($90,000 15,000) 40%
Controlling interest in consolidated net income
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$230,000
(45,000)
$185,000
60%
$111,000
700,000
$811,000
$900,000
(635,000)
$265,000
30,000
$235,000
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
34. (continued)
f. Consolidated buildings, 1/1/10 (subsidiary):
Book value..............................................................................
Acquisition-date fair-value allocation .................................
Consolidation figure .............................................................
$300,000
60,000
$360,000
$700,000
200,000
60,000
(40,000)
$920,000
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Pierson
(1,843,000)
1,100,000
125,000
275,000
27,500
(121,500)
Steele
(675,000)
322,000
120,000
11,000
7,000
(437,000)
(215,000)
(2,625,000)
(437,000)
350,000
(2,712,000)
(395,000)
(215,000)
25,000
(585,000)
1,204,000
1,854,000
430,000
Current assets
Investment in Steele
Customer base
Buildings and equipment
Copyrights
Goodwill
Total assets
Accounts payable
Notes payable
NCI in Steele
Common stock
Additional paid-in capital
Retained earnings 12/31
Total liabilities and SE
Adjustments
& Eliminations
NCI
(E) 80,000
(I)121,500
(13,500)
(S)395,000
(D) 22,500
2,500
Consolidated
(2,518,000)
1,422,000
245,000
366,000
34,500
-0-
(450,500)
(13,500)
(437,000)
(2,625,000)
(437,000)
350,000
(2,712,000)
1,634,000
(D) 22,500
(A)720,000
(S)769,500
(A)985,500
(I) 121,500
(E) 80,000
-0-
-0931,000
950,000
-0863,000
107,000
4,939,000
1,400,000
640,000
1,794,000
1,057,000
375,000
5,500,000
(485,000)
(542,000)
(200,000)
(155,000)
(685,000)
(697,000)
(A)375,000
(S) 85,500
(A)109,500
(900,000)
(300,000)
(2,712,000)
(4,939,000)
(400,000)
(60,000)
(585,000)
(1,400,000)
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
(S)400,000
(S) 60,000
2,174,000
2,174,000
(195,000)
(206,000)
(206,000)
(900,000)
(300,000)
(2,712,000)
(5,500,000)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
35. (Continued)
Controlling
Noncontrolling
Interest
$1,710,000
1,372,500
$ 337,500
Interest
$190,000
152,500
$37,500
b. If the fair value of the noncontrolling interest was $152,500, both goodwill and
the noncontrolling interest balance would be reduced equally by $37,500 as
follows:
Fair value of Steele Company (1,710,000 + 152,500)
Carrying amount acquired
Excess fair value
to customer base
to goodwill
$1,862,500
725,000
1,137,500
800,000
$337,500
$(157,500)
(13,500)
2,500
$ 168,500
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
Controlling
Noncontrolling
Interest
$1,710,000
1,372,500
$ 337,500
Interest
$152,500
152,500
-0-
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
36.
a.
$504,000
126,000
$630,000
(380,000)
$250,000
Annual Excess
Life Amortizations
$9,000
6,000
-0$15,000
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
36. a. (continued)
Accounts
Sales
Cost of goods sold
Operating expenses
Dividend income
Separate company net income
Consolidated net income
NCI in Leahy's income
Krauses interest in consolidated income
Retained earnings, 1/1
Net income (above)
Dividends paid
Retained earnings, 12/31
Current assets
Investment in Leahy
Buildings and equipment (net)
Trademarks
Goodwill
Total assets
Liabilities
Common stock
Retained earnings, 12/31 (above)
NCI in Leahy, 1/1
NCI in Leahy, 12/31
Total liabilities and equities
Krause
Corporation
(584,000)
194,000
246,000
(16,000)
(160,000)
Leahy
Inc.
(250,000)
95,000
65,000
______
(90,000)
Consolidation Entries
Debit
Credit
Noncontrolling Consolidated
Interest
Totals
(834,000)
289,000
326,000
-0-
(E) 15,000
(I) 16,000
(15,000)
(700,000)
(160,000)
70,000
(790,000)
(350,000)
(90,000)
20,000
(420,000)
296,000
504,000
191,000
680,000
100,000
0
1,580,000
390,000
144,000
0
725,000
(470,000)
(320,000)
(790,000)
(205,000)
(100,000)
(420,000)
16,000
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
(725,000)
1,097,000
292,000
145,000
2,021,000
(675,000)
(320,000)
(878,000)
(S)100,000
760,000
(744,000)
(204,000)
70,000
(878,000)
487,000
-0-
(S) 90,000
(A) 47,000
(1,580,000)
4,000
219,000
15,000
(204,000)
760,000
(137,000)
148,000
(148,000)
(2,021,000)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
36. (continued)
b.
Sales
Cost of goods sold
Operating expenses
Total expenses
Consolidated net income
$834,000
$289,000
326,000
615,000
$219,000
$15,000
$204,000
$504,000
97,000
$601,000
485,000
$116,000
If the noncontrolling interest fair value was $4.85 per share at the acquisition
date, then goodwill declines to $116,000 and the noncontrolling interest total
would also decline from $148,000 to $119,000.
Worksheet entries (S), (A1) and (A2) assuming a $4.85 noncontrolling interest
acquisition-date fair value:
(S)
Common Stock-Leahy
Retained Earnings- Leahy 1/1
Investment in Leahy
Noncontrolling Interest
100,000
350,000
360,000
90,000
36,000
54,000
72,000
18,000
(A2) Goodwill
Investment in Leahy
116,000
116,000
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
Controlling
Noncontrolling
Interest
$504,000
388,000
$116,000
Interest
$97,000
97,000
-0-
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
37.
$(2,500)
5,000
1,250
$3,750
Consolidated Totals:
Depreciation expense = $267,500 (add the two book values less $2,500
excess adjustment)
Amortization expense = $10,000 (add the two book values plus $5,000
excess adjustment)
Interest expense = $50,250 (add the two book values plus $1,250 excess
adjustment)
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
37. (continued)
Land = $517,000 (add the book values plus the $165,000 excess allocation)
Buildings and equipment (net) = $1,119,500 (add the book values less the
$25,000 allocation [asset was overvalued] plus the excess amortization)
Notes payable = $581,250 (add the book values less $10,000 excess
allocation plus amortization)
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Father
Revenues.........................................
(1,360,000)
Cost of goods sold..........................
700,000
Depreciation expense.....................
260,000
Amortization expense.....................
-0Interest expense.............................
44,000
Equity in income of Sam .............
(105,000)
Separate company net income......
(461,000)
Consolidated net income...............
Noncontrolling interest in Sam's income
Controlling interest in CNI .............
Retained earnings 1/1 ....................
(1,265,000)
Net income (above) ........................
(461,000)
Dividends paid ..........................
260,000
Retained earnings 12/31 ..........
(1,466,000)
Current assets ................................
965,000
Investment in Sam .........................
733,000
Land ................................................
Buildings and equipment (net)......
Copyright ...........................
Total assets ...............................
Accounts payable ..........................
Notes payable .................................
NCI in Sam 1/1.................................
NCI in Sam 12/31
....................................................
Common stock ...............................
Additional paid-in capital...............
Retained earnings 12/31(above)
Total liab. and stockholders' equity
292,000
877,000
-02,867,000
(191,000)
(460,000)
(300,000)
(450,000)
(1,466,000)
(2,867,000)
McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 11/e
Sam
(540,000)
385,000
10,000
5,000
5,000
-0(135,000)
Consolidation Entries
Debit
Credit
(E)
Noncontrolling Consolidated
Interest
Totals
(1,900,000)
1,085,000
267,500
10,000
50,250
-0-
2,500
(E) 5,000
(E) 1,250
(I) 105,000
(26,250)
(440,000)
(135,000)
65,000
(510,000)
528,000
60,000
265,000
95,000
948,000
(148,000)
(130,000)
(100,000)
(60,000)
(510,000)
(948,000)
(S) 440,000
(D) 52,000
13,000
1,040,750
(487,250)
26,250
(461,000)
(1,265,000)
(461,000)
260,000
(1,466,000)
1,493,000
-0517,000
1,119,500
190,000
3,319,500
(339,000)
(581,250)
(170,000)
(183,250)
(183,250)
(300,000)
(450,000)
(1,466,000)
(3,319,500)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
38.
a.
$603,000
67,000
$670,000
(460,000)
$210,000
Annual Excess
Land
Buildings
Equipment
Patents
Notes payable
Goodwill
Total
b.
Life Amortizations
10 years
($2,000)
5 years
8,000
10 years
5,000
5 years
4,000
$30,000
(20,000)
40,000
50,000
20,000
120,000
$90,000 indefinite
-0$15,000
$120,000
(15,000)
$105,000
10%
$10,500
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Interest expense
Investment income
Separate company net income
Consolidated net income
Income to noncontrolling interest
Income to controlling interest
(940,000)
480,000
100,000
40,000
(108,000)
(428,000)
Barstow Inc.
(280,000)
90,000
55,000
15,000
Interest
(E) 6,000
(E) 5,000
(E) 4,000
(I) 108,000
(10,500)
(1,367,000)
(340,000)
Net income
Dividends paid
Retained earnings, 12/31
(428,000)
110,000
(1,685,000)
(120,000)
70,000
(390,000)
Current assets
Investment in Barstow
610,000
702,000
250,000
Land
Buildings
Equipment
Patents
Goodwill
Total assets
380,000
490,000
873,000
150,000
250,000
150,000
3,055,000
800,000
(860,000)
(510,000)
(1,685,000)
(230,000)
(180,000)
(390,000)
(C*) 13,500
(S) 340,000
(D) 63,000
(A)
(E)
(A)
(A)
(A)
30,000
2,000
32,000
45,000
90,000
(A) 16,000
(S) 180,000
(800,000)
934,500
7,000
Totals
(1,220,000)
570,000
161,000
5,000
59,000
-0(425,000)
10,500
(414,500)
560,000
724,000
1,047,000
40,000
90,000
3,321,000
(A) 18,000
(E) 8,000
(E) 5,000
(E)
4,000
934,500
(414,500)
110,000
(1,658,000)
860,000
-0-
(*C) 13,500
(S) 468,000
(A) 175,500
(I) 108,000
(S) 52,000
(A) 19,500
(3,055,000)
Consolidated
(1,353,500)
(D) 63,000
Noncontrolling interest
Total liabilities and stockholders' equity
Noncontrolling
Credit
(120,000)
Notes payable
Common stock
Retained earnings, 12/31
Debit
(1,078,000)
(510,000)
(1,658,000)
(71,500)
(75,000)
(75,000)
(3,321,000)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
$528,000
352,000
880,000
(765,000)
$115,000
Annual Excess
Life Amortizations
(30,000) 5 years
$(6,000)
$145,000 indefinite
-0$(6,000)
$(4,500)
$825,000
$405,000
214,500
619,500
205,500
31,800
$173,700
b.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
b.
Controlling
Interest
$720,000
Interest
$290,000
658,000
$ 62,000
282,000
$ 8,000
$720,000
35,000
(28,000)
$727,000
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
40. (continued)
d. Consolidated Worksheet
TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY
Consolidation Worksheet
For Year Ending December 31, 2013
Revenues
Operating Expenses
Income of subsidiary
Separate company net income
Consolidated net income
NCI in Atlanta's income
Controlling interest in CNI
Retained earnings, 1/1
Net income (above)
Dividends paid
Retained earnings 12/31
Truman
(670,000)
402,000
(35,000)
(303,000)
Atlanta
(400,000)
280,000
NCI
(S)140,000
(15,000)
(823,000)
(303,000)
145,000
(500,000)
(120,000)
80,000
(540,000)
Current assets
Investment in Atlanta
481,000
727,000
390,000
Land
Buildings
Patent
Goodwill
Total assets
388,000
701,000
200,000
630,000
(S)200,000
(E) 10,000
(I) 35,000
(S) 500,000
(D) 28,000
2,297,000
1,220,000
(816,000)
(95,000)
(405,000)
(981,000)
(360,000)
(300,000)
(20,000)
(540,000)
12,000
145,000
(981,000)
871,000
-0-
(S)588,000
(I) 35,000
(A1) 70,000
(A2) 62,000
588,000
1,331,000
90,000
70,000
2,950,000
(E) 10,000
(1,176,000)
(95,000)
(405,000)
(981,000)
(S) 300,000
(S) 20,000
(A1) 30,000
(A2) 8,000
(S) 252,000
(290,000)
293,000
(1,220,000)
1,263,000
(318,000)
15,000
(303,000)
(823,000)
(303,000)
(S) 40,000
(D) 28,000
(A1)100,000
(A2) 70,000
(2,297,000)
Cons.
(870,000)
552,000
-0-
(120,000)
(981,000)
Liabilities
Common stock
Additional paid-in capital
Retained earnings 12/31
Noncontrolling interest 7/1
1,263,000
(293,000
)
(2,950,000)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
b.
$1,750,000
1,300,000
450,000
400,000
$50,000
$142,500
(95,000)
$47,500
$184,500
15,000
(4,500)
262,500
$67,500
$262,500
1,400,000
142,500
(95,000)
47,500
(38,000)
$1,672,000
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
41. (Continued) c.
Accounts
Revenues
Operating expenses
Equity earnings of Sysinger
Gain on revaluation
Separate company net income
Consolidated net income
NCI in Sysingers income
Allans share of CNI
(965,000)
(431,000)
140,000
(1,256,000)
(600,000)
(150,000)
40,000
(710,000)
Current assets
Investment in Sysinger
288,000
1,672,000
540,000
-0-
826,000
850,000
-0-
590,000
370,000
-0-01,500,000
3,636,000
Liabilities
Common stock
Additional paid-in capital
Retained earnings 12/31
NCI in Sysinger, 1/1
(1,300,000)
(900,000)
(180,000)
(1,256,000)
-0-
(90,000)
(500,000)
(200,000)
(710,000)
-0-
-0(3,636,000)
-0(1,500,000)
(S) 600,000
(D)
(D) 38,000
(A) 400,000
(A) 50,000
38,000
2,000
828,000
-0-
(S)1,235,000
(I) 47,500
(A) 427,500
1,416,000
1,220,000
300,000
50,000
3,814,000
(E) 100,000
(1,390,000)
(900,000)
(180,000)
(1,256,000)
(S) 500,000
(S) 200,000
(S) 65,000
(A) 22,500
1,935,500
(965,000)
(431,000)
140,000
(1,256,000)
1,935,500
(87,500)
(88,000)
(88,000)
(3,814,000)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
$955,000
150,000
(20,000)*
(80,000)
$1,005,000
30%
301,500
300,000
$
1,500
$955,000
810,000
145,000
120,000
$25,000
Investment in Keane
Cash
APIC from Step Acquisition
301,500
300,000
1,500
$573,000
78,000
(48,000)
301,500
144,000
(54,000)
$994,500
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Accounts
Revenues
Operating expenses
Equity in Keanes income
Separate company net income
Consolidated net income
NCI in Keanes income
Bretzs share of CNI
Bretz, Inc.
(402,000)
200,000
(144,000)
(346,000)
(797,000)
(346,000)
143,000
(1,000,000)
Current assets
Investment in Keane Company
Trademarks
Copyrights
Equipment (net)
Goodwill
Total assets
Liabilities
Common stock
Additional paid-in capital
APIC-step acquisition
Retained earnings,12/31
Non-controlling interest 1/1
Non-controlling interest 12/31
Total liabilities and equities
Keane Co.
(300,000)
120,000
(180,000)
(16,000)
224,000
994,500
(500,000)
(180,000)
60,000
(620,000)
(S) 500,000
(D) 54,000
6,000
190,000
106,000
210,000
380,000
600,000
300,000
110,000
1,914,500
1,200,000
(D)54,000
(S) 792,000
(A) 112,500
(I) 144,000
(A)100,000
(E) 20,000
(200,000)
(300,000)
(80,000)
706,000
590,000
490,000
25,000
2,225,000
(653,000)
(400,000)
(60,000)
(1,500)
(1,000,000)
(S)300,000
(S) 80,000
(620,000)
(A) 12,500
(S) 88,000
(1,914,500)
(1,200,000)
1,223,000
(797,000)
(346,000)
143,000
(1,000,000)
414,000
0
(A) 25,000
(453,000)
(400,000)
(60,000)
(1,500)
(1,000,000)
(362,000)
16,000
(346,000)
1,223,000
(100,500)
110,500
(110,500)
(2,225,000)
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
1. How did Coca-Cola allocate the acquisition-date fair value of CCE among the assets
acquired and liabilities assumed?
Note 2 (Acquisitions and Divestitures) of Coca-Colas 2010 10-K shows the following
allocation for the CCE acquisition:
Cash and cash equivalents
Marketable securities
Trade accounts receivable
Inventories
Other current assets
Property, plant and equipment
Bottlers' franchise rights with indefinite lives
Other intangible assets
Other noncurrent assets
Total identifiable assets acquired
1,826
266
9,345
1,313
2,603
$15,353
49
7
1,194
696
744
5,385
5,100
1,032
261
$14,468
(885)
7,746
(13)
$ 6,848
2. What are employee replacement awards? How did Coca-Cola account for the
replacement award value provided to the former employees of CCE?
Employee replacement award represent various share-based payments to employees
that the acquiring firm replaces with new awards based on its shares. The ASC
requires that if replacement awards are based on past service, their fair value is
included in consideration transferred. If the replacement awards are for future
service, their value is expensed as incurred. Coca-Cola followed the ASC for its
replacement awards (10-K Note 2).
3. How did Coca-Cola account for its 33 percent interest in CCE prior to the acquisition
of the 67 percent not already owned by Coca-Cola?
Coca-Cola used the equity method to account for its previous 33 percent investment in
CCE (10-K page 53).
4. Upon acquisition of the additional 67 percent interest, how did Coca-Cola account for
the change in fair value of its original 33 percent ownership interest?
We remeasured our equity interest in CCE to fair value upon the close of the
transaction. As a result, we recognized a gain of approximately $4,978 million, which
was classified in the line item other income (loss) net in our consolidated statement
of income. (10-K Note 2).
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
$60,000,000
27,000,000
10,000,000
$97,000,000
The shares of Nu-Auto stock and the contingency are both measured at their
acquisition-date fair values (ASC 805-30-30-7, ASC 805-30-25-5).
2. What values should Nu-Auto assign to identifiable assets and liabilities as part of the
acquisition accounting?
Cash
Accounts receivable
Land
Building
Machinery
Trademark
Research and development asset
Accounts payable
Total net asset fair value
$ 270,000
800,000
2,930,000
19,000,000
46,000,000
8,000,000
14,000,000
(1,000,000)
$90,000,000 (ASC 805-20-30-1)
IFRS allows two alternative measures for the noncontrolling interest. The first is
identical to the U.S. measure. The second alternative uses the noncontrolling interest
percentage of the fair value of the subsidiarys identifiable net assets. In this case, the
second alternative provides a value of $9,000,000.
4. Under U.S. GAAP, what amount should Nu-Auto recognize as goodwill from the
acquisition? What alternative valuations are available for goodwill under IFRS?
Goodwill under U.S. GAAP (ASC 805-30-30-1) and IFRS alternative 1 (IFRS 3 IN 8):
Consideration transferred (above)
Acquisition-date noncontrolling interest fair value
Acquisition-date value assigned to subsidiary
Net assets acquired fair value (above)
Goodwill
$ 97,000,000
11,000,000
$108,000,000
90,000,000
$ 18,000,000
$ 97,000,000
9,000,000
$106,000,000
90,000,000
$ 16,000,000
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.