ADVANCED ACCOUNTING
ADVANCED ACCOUNTING
12th Edition
ISBN: 9780357671221
Author: FISCHER
Publisher: CENGAGE L
Question
Book Icon
Chapter 2, Problem 2.14.2P
To determine

Business combination:

Business combination refers tothe combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.

Consolidated financial statements:

The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity.The consolidated financial statements serve the purpose of both the entities about financial information.

To Prepare:

Consolidated worksheet as of December 31, 2015.

Expert Solution & Answer
Check Mark

Answer to Problem 2.14.2P

    Company P and Company S
    Consolidation Worksheet
    Year ending December 31, 2015
    Balance SheetCompany PCompany SDebitCreditNCIConsolidated Balances
    Cash$20,000     $20,000
    Accounts receivable$300,000 $50,000    $350,000
    Inventory$410,000 $120,000  $20,000  $510,000
    Investment in Company P$950,000   $272,000   
        $678,000   
    Land$800,000 $100,000 $100,000   $1,000,000
    Building$2,800,000 $300,000 $200,000   $3,300,000
    Accumulated depreciation($500,000)($100,000)   ($600,000)
    Equipment$600,000 $140,000 $110,000   $850,000
    Accumulated depreciation($230,000)($50,000)   ($280,000)
    Patents $10,000 $140,000   $150,000
    Computer software  $50,000   $50,000
    Goodwill $60,000 $277,500   $337,500
    Current liabilities($150,000)($90,000)   ($240,000)
    Bonds payable($300,000)($200,000)   ($500,000)
    Premium on Bonds payable   $10,000  ($10,000)
    Common stock (Company S) ($10,000)$8,000  ($2,000)$0
    Paid-in capital in excess of par (Company S) ($190,000)$152,000  ($38,000)$0
    Retained earnings (Company S) ($140,000)$112,000 $169,500 ($197,500)$0
    Common stock (Company P)($92,000)    ($92,000)
    Paid-in capital in excess of par (Company P)($3,508,000)    ($3,508,000)
    Retained earnings (Company P)($1,100,000)    ($1,100,000)
    Non-controlling interest     $0
    Totals$0 $0 $1,149,500 $1,149,500 $237,500 $237,500

Table: (1)

Explanation of Solution

    Company P and Company S
    Consolidation Worksheet
    Year ending December 31, 2015
    Balance SheetCompany PCompany SDebitCreditNCIConsolidated Balances
    Cash$20,000     $20,000
    Accounts receivable$300,000 $50,000    $350,000
    Inventory$410,000 $120,000  $20,000  $510,000
    Investment in Company P$950,000   $272,000   
        $678,000   
    Land$800,000 $100,000 $100,000   $1,000,000
    Building$2,800,000 $300,000 $200,000   $3,300,000
    Accumulated depreciation($500,000)($100,000)   ($600,000)
    Equipment$600,000 $140,000 $110,000   $850,000
    Accumulated depreciation($230,000)($50,000)   ($280,000)
    Patents $10,000 $140,000   $150,000
    Computer software  $50,000   $50,000
    Goodwill $60,000 $277,500   $337,500
    Current liabilities($150,000)($90,000)   ($240,000)
    Bonds payable($300,000)($200,000)   ($500,000)
    Premium on Bonds payable   $10,000  ($10,000)
    Common stock (Company S) ($10,000)$8,000  ($2,000)$0
    Paid-in capital in excess of par (Company S) ($190,000)$152,000  ($38,000)$0
    Retained earnings (Company S) ($140,000)$112,000 $169,500 ($197,500)$0
    Common stock (Company P)($92,000)    ($92,000)
    Paid-in capital in excess of par (Company P)($3,508,000)    ($3,508,000)
    Retained earnings (Company P)($1,100,000)    ($1,100,000)
    Non-controlling interest     $0
    Totals$0 $0 $1,149,500 $1,149,500 $237,500 $237,500

Table: (1)

Working note 1:

Value Analysis schedule:

    Value analysis scheduleCompany-Implied fair valueParent price (80%)Non-controlling interest value (20%)
    Fair value of subsidiary$1,187,500 $950,000 $237,500
    Fair value of net assets excluding goodwill$850,000 $680,000 $170,000
    Gain on acquisition$337,500 $270,000 $67,500

Table: (2)

Working note 2:

Determination and distribution of excess schedule:

    Determination and distribution of excess schedule 
    ParticularsCompany Implied fair valueParent price (80%)Non-controlling interest value (20%) 
    Fair value of subsidiary (a)$1,187,500(5)$950,000 $237,500  
    Book value of interest acquired    
    Common stock$10,000    
    Paid-in capital in excess of par$190,000    
    Retained earnings$140,000    
    Total equity$340,000 $340,000 $340,000  
    Interest acquired 80%20% 
    Book value (b)$340,000 $272,000 $68,000  
    Excess of fair value over book value [c] = (a) - (b)$847,500 $678,000 $169,500  
         
    Adjustment of identifiable accountsAdjustmentLifeAmortization per yearWorksheet key
    Increase in inventory value($20,000)  Debit (D) 1
    Increase in land value$100,000   Debit (D) 2
    Increase in building$200,000   Debit (D) 3
    Increase in equipment$110,000   Debit (D) 4
    Increase in patents$140,000   Debit (D) 5
    Increase in computer software$50,000   Debit (D) 6
    Premium on bonds payable($10,000)  Credit (D) 7
    Goodwill$277,500   Credit (D) 8
    Total$847,500    

Table: (3)

Working note 3:

Compute the fair value of the net assets of Company S:

    ParticularsAmount
    Total assets: 
    Accounts receivable$50,000
    Inventory$100,000
    Land$200,000
    Building$400,000
    Equipment$200,000
    Patent$150,000
    Computer software$50,000
    Total liabilities: 
    Current liabilities($90,000)
    Bonds payable($210,000)
    Total fair value of net assets of Company S$850,000

Table: (4)

Working note 4:

Compute the amount of consideration:

  Amountofconsidertaion=$19,000×$50=$950,000

Working note 5:

Compute the fair value of subsidiary:

  Amountofconsidertaion=$950,00080%=$1,187,500

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Determine the gross margin of this financial accounting question
Need help with this accounting question
What is the gross margin of this financial accounting question?
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education