Assets Liabilities and Equity Current assets $100,000 Current liabilities . $ 80,000 Bonds payable Common stock ($10 par). . Paidin capital in excess of par Retained earnings 250,000 100,000 200,000 Investments 150,000 Land..... Building (net) Equipment (net) Total assets.. 120,000 350,000 160,000 250,000 $880,000 Total liabilities and equity ... $880,000
On January 1, 2015, Port Company acquires 8,000 shares of Solvo Company by issuing 10,000 of its common stock shares with a par value of $10 per share and a fair value of $70 per share. The price paid reflects a control premium. The market value of the shares owned by the NCI is $80 per share. At the time of the purchase, Solvo has the following balance sheet:
Appraisals indicate that book values are representative of fair values with the exception of the land and building. The land has a fair value of $180,000, and the building is appraised at $450,000. The building has an estimated remaining life of 20 years. Any remaining excess is goodwill.
The following summary of Solvo’s
Balance, January 1, 2015. . . . . . . . . . . . . . . . . . . $250,000
Net income for 2015. . . . . . . . . . . . . . . . . . . . . 60,000
Dividends paid in 2015. . . . . . . . . . . . . . . . . . . (10,000)
Balance, December 31, 2015 . . . . . . . . . . . . . . . $300,000
Net income for 2016. . . . . . . . . . . . . . . . . . . . . 50,000
Dividends paid in 2016. . . . . . . . . . . . . . . . . . . (10,000)
Balance, December 31, 2016 . . . . . . . . . . . . . . . $340,000
1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Solvo Company. As a part of the schedule, indicate annual amortization of excess adjustments.
2. For 2015 and 2016, prepare the entries that Port would make concerning its investment in Solvo under the simple equity, sophisticated equity, and cost methods You may want to set up a worksheet with side-by-side columns for each method so that you can easily compare the entries.
3. For 2015 and 2016, prepare the worksheet elimination that would be made on a consolidated worksheet under the simple equity, sophisticated equity, and cost methods. You may want to set up a worksheet with side-by-side columns for each method so that you can easily compare the entries.
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