On January 1, 2020, Mona, Inc., acquired 90 percent of Lisa Company’s common stock as well as 70 percent of its preferred shares. Mona paid $73,000 in cash for the preferred stock, with a call value of 110 percent of the $50 per share par value. The remaining 30 percent of the preferred shares traded at a $42,000 fair value. Mona paid $580,500 for the common stock. At the acquisition date, the noncontrolling interest in the common stock had a fair value of $64,500. The excess fair value over Lisa’s book value was attributed to franchise contracts of $46,000. This intangible asset is being amortized over a 40-year period. Lisa pays all preferred stock dividends (a total of $16,000 per year) on an annual basis. During 2020, Lisa’s book value increased by $118,000.
On January 1, 2020, Mona, Inc., acquired 90 percent of Lisa Company’s common stock as well as 70 percent of its
On January 2, 2020, Mona acquired one-half of Lisa's outstanding bonds payable to reduce the business combination's debt position. Lisa's bonds had a face value of $100,000 and paid cash interest of 6 percent per year. These bonds had been issued to the public to yield 10 percent. Interest is paid each December 31. On January 2, 2020, these bonds had a total $87,320 carrying amount. Mona paid $51,773, indicating an effective interest rate of 5 percent.
On January 3, 2020, Mona sold Lisa fixed assets that had originally cost $108,000 but had
The individual financial statements for these two companies for the year ending December 31, 2021, are as follows:
| Mona, Inc. | Lisa Company | ||||||
| Sales and other revenues | $ | (516,000 | ) | $ | (216,000 | ) | |
| Expenses | 228,000 | 128,000 | |||||
| Dividend income—Lisa common stock | (16,200 | ) | 0 | ||||
| Dividend income—Lisa preferred stock | (11,200 | ) | 0 | ||||
| Net income | $ | (315,400 | ) | $ | (88,000 | ) | |
| $ | (708,000 | ) | $ | (516,000 | ) | ||
| Net income (above) | (315,400 | ) | (88,000 | ) | |||
| Dividends declared—common stock | 100,800 | 18,000 | |||||
| Dividends declared—preferred stock | 0 | 16,000 | |||||
| Retained earnings, 12/31/21 | $ | (922,600 | ) | $ | (570,000 | ) | |
| Current assets | $ | 138,419 | $ | 508,000 | |||
| Investment in Lisa—common stock | 580,500 | 0 | |||||
| Investment in Lisa—preferred stock | 73,000 | 0 | |||||
| Investment in Lisa—bonds | 50,930 | 0 | |||||
| Fixed assets | 1,108,000 | 808,000 | |||||
| Accumulated depreciation | (308,000 | ) | (208,000 | ) | |||
| Total assets | $ | 1,642,849 | $ | 1,108,000 | |||
| Accounts payable | $ | (412,249 | ) | $ | (128,942 | ) | |
| Bonds payable | 0 | (100,000 | ) | ||||
| Discount on bonds payable | 0 | 6,942 | |||||
| Common stock | (308,000 | ) | (208,000 | ) | |||
| Preferred stock | 0 | (108,000 | ) | ||||
| Retained earnings, 12/31/21 | (922,600 | ) | (570,000 | ) | |||
| Total liabilities and equities | $ | (1,642,849 | ) | $ | (1,108,000 | ) | |
Note: Credits are indicated by parentheses.
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What consolidation worksheet adjustments would have been required as of January 1, 2020, to eliminate the subsidiary's common and preferred stocks?
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What consolidation worksheet adjustments would have been required as of December 31, 2020, to account for Mona's purchase of Lisa's bonds?
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What consolidation worksheet adjustments would have been required as of December 31, 2020, to account for the intra-entity sale of fixed assets?
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Assume that consolidated financial statements are being prepared for the year ending December 31, 2021. Calculate the consolidated balance for each of the following accounts:
- Franchises
- Fixed Assets
- Accumulated Depreciation
- Expenses
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