Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Consolidation
Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading struc…
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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.

(a)

Expert Solution
Check Mark

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

Advanced Accounting, Chapter 2, Problem 6.1E , additional homework tip 1

Calculating net liabilities,

Net liabilities = Current liabilities + Bonds payable Advanced Accounting, Chapter 2, Problem 6.1E , additional homework tip 2

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 ScheduleCompany-implied fair valueParent 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 ScheduleCompany-implied fair valueParent 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 acquired80%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

Advanced Accounting, Chapter 2, Problem 6.1E , additional homework tip 3

Land Adjustment = Fair value - book value

Advanced Accounting, Chapter 2, Problem 6.1E , additional homework tip 4

Building Adjustment = Fair value - book value

Advanced Accounting, Chapter 2, Problem 6.1E , additional homework tip 5

Equipment Adjustment = Fair value - book value

Advanced Accounting, Chapter 2, Problem 6.1E , additional homework tip 6

Adjustment of Identifiable Accounts

    ParticularsAdjustmentsWorksheet key
    Inventory$1000000Debit D1
    Land$100000Debit D2
    Building $200000Debit D3
    Equipment (30000)Credit D4
    Goodwill$180000Debit 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.

(b)

Expert Solution
Check Mark

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 ScheduleCompany-implied fair valueParent 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 ScheduleCompany-implied fair valueParent 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 acquired80%20%
    Book value (b)$500000$400000$100000
    Excess of fair value over book value (a)-(b)$500000$400000$100000

Adjustment of identifiable accounts

    ParticularsAdjustmentsWorksheet Key
    Inventory$50000Debit D1
    Land$100000Debit D2
    Building$200000Debit D3
    equipment($30000)Credit D4
    Goodwill$160000Debit 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.

c.

Expert Solution
Check Mark

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 ScheduleCompany-implied fair valueParent 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 acquired80%20%
    Book value (b)$500000$400000$100000
    Excess of fair value over book value (a)-(b)$464000$400000$64000

Adjustment of Identifiable Accounts

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

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Chapter 2 Solutions

Advanced Accounting

Ch. 2 - Prob. 1UTICh. 2 - Prob. 2UTICh. 2 - Prob. 3UTICh. 2 - Prob. 4UTICh. 2 - Prob. 5UTICh. 2 - Prob. 6UTICh. 2 - Santos Corporation is considering investing in...Ch. 2 - Prob. 2.1ECh. 2 - Prob. 2.2ECh. 2 - Prob. 3.1E
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