Detner International purchases 80% of the outstanding stock of Hardy Company for $1,600,000 on January 1, 2015. At the purchase date, the inventory, equipment, and patents of Hardy Company have fair values of $10,000, $50,000, and $100,000, respectively, in excess of their book values. The other assets and liabilities of Hardy Company have book values equal to their fair values. The inventory is sold during the month following the purchase. The two companies agree that the equipment has a remaining life of eight years and the patents 10 years. Onthe purchase date, the owners’ equity of Hardy Company is as follows:Common stock ($10 stated value) . . . . . . . . . . . . . . . . $1,000,000Additional paid-in capital in excess of par . . . . . . . . . 300,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000During 2015 and 2016, Hardy Company has income and pays dividends as follows: Income Dividends2015 . . . . . . . . . . . . . . . . . . . . $ 90,000 $30,0002016 . . . . . . . . . . . . . . . . . . . . 150,000 30,000The trial balances of the two companies as of December 31, 2017, shown on page 189. Detner International Hardy CompanyCurrent Assets . . . . . . . . . . . . . . . . . . . . 632,000 505,000Equipment (net) . . . . . . . . . . . . . . . . . 1,320,000 940,000Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 35,000Other Assets . . . . . . . . . . . . . . . . .. . . . 1,620,000 730,000Investment in Hardy . . . . . . .. . . . . . . 1,600,000Accounts Payable . . . . . . . . . . . .. . . . . (658,000) (205,000)Common Stock ($5 par) . . . . . . . . . . (2,000,000)Common Stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000,000)Additional Paid-In Capital in Excess of Par (1,200,000) (300,000)Retained Earnings, January 1, 2017. . . (1,255,000) (580,000)Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (905,000) (425,000)Cost of Goods Sold . . . . . . . . . . . . . . 470,000 170,000Other Expenses . . . . . . . . . . . . . . . . . . . 250,000 100,000Dividend Income . . . . . . . . . . . . . . . . . . (24,000)Dividends Declared . . . . . . . . . . . . . . . . 50,000 30,000Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0The remaining excess of cost over book value is attributable to goodwill.1. Prepare the original value analysis and a determination and distribution of excess schedule for the investment.2. Prepare the consolidated worksheet for December 31, 2017. Include columns for the eliminations and adjustments, the consolidated income statement, the controlling retained earnings, and the consolidated balance sheet.
Detner International purchases 80% of the outstanding stock of Hardy Company for $1,600,000 on January 1, 2015. At the purchase date, the inventory, equipment, and patents of Hardy Company have fair values of $10,000, $50,000, and $100,000, respectively, in excess of their book values. The other assets and liabilities of Hardy Company have book values equal to their fair values. The inventory is sold during the month following the purchase. The two companies agree that the equipment has a remaining life of eight years and the patents 10 years. Onthe purchase date, the owners’ equity of Hardy Company is as follows:
Common stock ($10 stated value) . . . . . . . . . . . . . . . . $1,000,000
Additional paid-in capital in excess of par . . . . . . . . . 300,000
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000
During 2015 and 2016, Hardy Company has income and pays dividends as follows:
Income Dividends
2015 . . . . . . . . . . . . . . . . . . . . $ 90,000 $30,000
2016 . . . . . . . . . . . . . . . . . . . . 150,000 30,000
The
Detner International Hardy Company
Current Assets . . . . . . . . . . . . . . . . . . . . 632,000 505,000
Equipment (net) . . . . . . . . . . . . . . . . . 1,320,000 940,000
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 35,000
Other Assets . . . . . . . . . . . . . . . . .. . . . 1,620,000 730,000
Investment in Hardy . . . . . . .. . . . . . . 1,600,000
Accounts Payable . . . . . . . . . . . .. . . . . (658,000) (205,000)
Common Stock ($5 par) . . . . . . . . . . (2,000,000)
Common Stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000,000)
Additional Paid-In Capital in Excess of Par (1,200,000) (300,000)
Retained Earnings, January 1, 2017. . . (1,255,000) (580,000)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (905,000) (425,000)
Cost of Goods Sold . . . . . . . . . . . . . . 470,000 170,000
Other Expenses . . . . . . . . . . . . . . . . . . . 250,000 100,000
Dividend Income . . . . . . . . . . . . . . . . . . (24,000)
Dividends Declared . . . . . . . . . . . . . . . . 50,000 30,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
The remaining excess of cost over book value is attributable to
1. Prepare the original value analysis and a determination and distribution of excess schedule for the investment.
2. Prepare the consolidated worksheet for December 31, 2017. Include columns for the eliminations and adjustments, the consolidated income statement, the controlling retained earnings, and the consolidated
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
