Chapter 2, Problem 6.1E

(a)

To determine

Concept Introduction: The value analysis is more of a systematic production review which includes the purchase process and the design of product to make sure the costs are reduced. This can be done using a set of activities including the product designs to make use of parts that have low-tolerance which are affordable, to switch to the components that cost low, including standardization of the parts to ensure the volume discounts are achieved.

To Prepare: The value analysis schedule and the determination and distribution of excess schedules.

Explanation of Solution

Given: Quail company purchases 80 of the common stock of Commo Company for $800000. At the time of purchase, Commo has framed its balance sheet.

Calculating fair value of total assets.

Fair value of total assets = Cash equivalents + Inventory + Land + Building + Equipment

Calculating net liabilities,

Net liabilities = Current liabilities + Bonds payable

Now, calculate the fair value of net assets:

Fair value of net assets = Fair value of total assets - Liabilities payable = $1420000-$600000 = $820000

Value analysis schedule.

Value analysis Schedule	Company-implied fair value	Parent Price (80%)	Non-controlling interest value (20%)
Company fair value	$1000000	$800000	$200000
Fair value of net assets excluding goodwill.	$820000	$656000	$164000
Goodwill	$180000	$1440000	$36000

Along with total equity and excess of fair value over book value.

Value analysis Schedule	Company-implied fair value	Parent Price (80%)	Non-controlling interest value (20%)
Fair value of subsidiary	$1000000	$800000	$200000
Less: Book value of interest acquired Common stock Paid-in capital excess of par retained earnings	$100000 $150000 $250000
Total equity	$500000	$500000	$500000
Interest acquired		80%	20%
Book value (b)	$500000	$400000	$100000
Excess of fair value over book value (a)-(b)	$500000	$400000	$100000

Inventory Adjustment = Fair value - book value

Land Adjustment = Fair value - book value

Building Adjustment = Fair value - book value

Equipment Adjustment = Fair value - book value

Adjustment of Identifiable Accounts

Particulars	Adjustments	Worksheet key
Inventory	$1000000	Debit D1
Land	$100000	Debit D2
Building	$200000	Debit D3
Equipment	(30000)	Credit D4
Goodwill	$180000	Debit D5
Total	$500000

(b)

To determine

Concept Introduction: The value analysis is more of a systematic production review which includes the purchase process and the design of product to make sure the costs are reduced. This can be done using a set of activities including the product designs to make use of parts that have low-tolerance which are affordable, to switch to the components that cost low, including standardization of the parts to ensure the volume discounts are achieved.

The value analysis schedule and the determination and distribution of excess schedules.

Explanation of Solution

Given: Quail company purchases 80% of the common stock of Commo Company for $800000. At the time of purchase, Commo has framed its balance sheet.

Market value of shares = Total number of shares x value per share

= 4000 shares x $45 per share = $980000

Goodwill under market value

Value analysis Schedule	Company-implied fair value	Parent Price (80%)	Non-controlling interest value (20%)
Fair value of company	$980000	$800000	$180000
Fair value of net assets excluding goodwill	$820000	$656000	$164000
Goodwill	$160000	$144000	$16000

Value analysis schedule

Value analysis Schedule	Company-implied fair value	Parent Price (80%)	Non-controlling interest value (20%)
Fair value of subsidiary (a)	$980000	$800000	$180000
Less: Book value of interest acquired Common stock Paid-in capital excess of par retained earnings	$100000 $150000 $250000
Total equity	$500000	$500000	$500000
Interest acquired		80%	20%
Book value (b)	$500000	$400000	$100000
Excess of fair value over book value (a)-(b)	$500000	$400000	$100000

Adjustment of identifiable accounts

Particulars	Adjustments	Worksheet Key
Inventory	$50000	Debit D1
Land	$100000	Debit D2
Building	$200000	Debit D3
equipment	($30000)	Credit D4
Goodwill	$160000	Debit D6
Total	$480000

c.

To determine

Concept Introduction: The value analysis is more of a systematic production review which includes the purchase process and the design of product to make sure the costs are reduced. This can be done using a set of activities including the product designs to make use of parts that have low-tolerance which are affordable, to switch to the components that cost low, including standardization of the parts to ensure the volume discounts are achieved.

The value analysis schedule and the determination and distribution of excess schedules.

Explanation of Solution

Given: Quail company purchases 80 of the common stock of Commo Company for $800000. At the time of purchase, Commo has framed its balance sheet.

Value analysis schedule

Value analysis Schedule	Company-implied fair value	Parent Price (80%)	Non-controlling interest value (20%)
Fair value of subsidiary (a)	$964000	$800000	$164000
Less: Book value of interest acquired Common stock Paid-in capital excess of par retained earnings	$100000 $150000 $250000
Total equity	$500000	$500000	$500000
Interest acquired		80%	20%
Book value (b)	$500000	$400000	$100000
Excess of fair value over book value (a)-(b)	$464000	$400000	$64000

Adjustment of Identifiable Accounts

Particulars	Adjustments	Worksheet Key
Inventory	$50000	Debit D1
Land	$100000	Debit D2
Building	$200000	Debit D3
equipment	($30000)	Credit D4
Goodwill	$144000	Debit D6
Total	$464000