ADVANCED ACCOUNTING
ADVANCED ACCOUNTING
12th Edition
ISBN: 9780357671221
Author: FISCHER
Publisher: CENGAGE L
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Chapter 3, Problem 3.12.2P
To determine

Introduction:

Consolidation of statements:

The result of parent as well as all of its subsidiaries financial position is reflected in consolidated statements. It is beneficial for creditors and owners of the parent company to know the outcome of the operations of parent and its subsidiaries.

To calculate: Consolidated worksheet for paulcraft corporation and its subsidiary Switzer corporation as of Dec 31 2017. Also preparing supporting amortization and income distribution schedules.

Expert Solution & Answer
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Answer to Problem 3.12.2P

The Fair value of subsidiary is $500000 parent price of $400000 and non-controlling interest value comes to $100000. The fair value of net assets excluding goodwill comes to $464000 which is arrived by considering Inventory, lands, bonds payable, buildings and equipment and total equity. Goodwill is calculated and is arrived at $36000 after taking the difference of fair value of subsidiary and fair value of net assets which is goodwill.

Explanation of Solution

1. Worksheet Paulcraft Corporation and Subsidiary Switzer Company.

    ParticularTrial BalanceEliminations & AdjustmentsCon Inc.stmtNCIControlling interest RECon BS
    Company P Company SDebitCredit
    Cash$178000$81000$259000
    Accounts receivable$80000$35000$115000
    Inventory$90000$52000$142000
    Land$100000$60000$90000 (4)$250000
    Investment in S$400000)$8000(1)
    $8000(2)
    $169600(3)
    $230400(4)
    Buildings$800000$200000$130000(4)$1130000
    Acc depre($220000)($60000)$6500(5)($266500)
    Equipment$150000$100000$30000 (4)$280000
    Acc depre($75000)($44000)$6000 (5)($125000)
    Goodwill$36000(4)$36000
    Current liabilities($50000)($88000)($138000)
    Bond payable($100000)($100000)
    Discount (premium)$4000 (4)
    $800 (5)$3200
    Common stock- S($10000)$8000 (3)($2000)
    Paid in cap in excess of Par − S($90000)$72000 (3)($18000)
    RE- S($112000)$89600 (3)($80000)
    $57600(4)
    Common stock − P($100000)($100000)
    Paid in cap in excess of Par − P($900000)($900000)
    RE- P($300000)
    ($300000)
    Sales($750000)($300000)($10500000)
    COGS$400000$180000$2000$578000
    Depe exp- Bldg$30000$10000$6500 (5)$46500
    Depre exp- equipment$15000$14000$6000 (5)$35000
    Other expenses$120000$54000$174000
    Interest exp$8000$800 (5)$8800
    Sub (dividend) Income($8000)$8000 (1)
    Div declared − S$10000$8000 (2)$2000
    Div declared- P$20000$20000
    Total$488900$488900
    Cons Net income($207700)
    To NCI (#6)$4540($4540)
    To CI$203160($203160)
    Total NCI($102540)($102540)
    RE CI($483160)($483160)

Where( 1) − Current year subsidiary income (2) current year dividend (3) Eliminate controlling interest in subsidiary equity.

(4) per D&D schedule distribute excess.

(5) per Amortization schedule amortized excess.

2. Determination of Value analysis schedule:-

    ParticularsCompany Implied ValueParent (80%)NCI (20%)
    Fair Value of Company$500000 ( working #1)$400000$100000
    Fair value of net assets excluding goodwill$464000 (Working #2)$371200$92800
    Goodwill$36000$28800$7200

3. Determination and Distribution of Excess schedule

    ParticularsCompany Implied Fair valueParent (80%)NCI (20%)
    Fair value of subsidiary (A)$500000$400000$100000
    Book Value of Interest acquired
    Common stock$10000
    Paid in capital in excess of par$90000
    Retained Earnings$112000
    Total Equity$212000$212000$212000
    Interest acquired80%20%
    Book Value (b)$212000$169600$42400
    Excess of Fair value over Book Value (a − 212000)$288000 ($500000-$212000)$230400$57600
    Adjustment of Identifiable accountsAdjustmentLife Amortization per year
    Inventory (Working #4)($2000)1Credit D1
    Land(Working #4)$90000Debit D2
    Bonds Payable(Working #4)$40005 years$800Debit D3
    Buildings(Working #4)$13000020$6500Debit D4
    Equipment(Working #4)$300005$6000Debit D5
    Goodwill ( per Value analysis table )$36000Debit D6
    Total$288000

Where Debit D records non-controlling interest portion of excess of fair value over the book value, excess in investment account is distributed and patent is adjusted to fair value.

Working :-

1. Company fair value of subsidiary

P Company purchase outstanding stock of S company for $400000

  =$40000080×100=$500000

2. Fair value of net assets excluding goodwill

= Total Equity +Inventory +land+ Bonds payable+ Buildings+ Equipment

  =$212000$2000+$90000+$4000+$130000+$30000=$464000

3. Goodwill

  Fair value of subsidiary company  Fair value of net assets

  =$500000$464000=$36000

4. Assets

    AssetsAdjustment (a-b)Cost (a)Market Value (b)
    Inventory ($2000)4000038000
    Land$9000060000150000
    Bonds Payable$400010000096000
    Buildings$130000150000 ( $200000-$50000)280000
    Equipment$3000070000 ($10000-$30000)100000

5. Total amortization table

    Account adjustmentsLifeAnnual amountCurrent yearPrior yearTotalKey
    Inventory1($2000)($2000)($2000)D1
    Subject to amortization
    Bonds payable5$800$800$800A3
    Buildings20$6500$6500$6500A4
    Equipment5$6000$6000$6000A5
    Total amortizations$13300$13300$13300

6. Internally generated income - S company Internally generated income = S company sales −[COGS+Depreciation (bldg.)+Depreciation(equipment)+Other expense+Interest expense]=$300000[$180000+$10000+$14000+$54000+$8000]=$34000

S company income distribution

    ParticularAmountParticular Amount
    Current year amortizations$13300Internally generated income (Working #6)$34000
    Inventory adjustment$2000
    Adjusted income before tax $22700
    Non Controlling interest share ( $22700×20%

    )

    $4540
    Controlling interest share $22700×80%$18160

7. Internally generated income - P Company Internally generated income = S company sales −[COGS+Depreciation (bldg.)+Depreciation(equipment)+Other expense]

  =$750000[$400000+$30000+$15000+$120000]=$185000

P company income distribution

    ParticularAmountParticular Amount
    Internally generated income (Working #7)$18500
    Controlling share of subsidiary$18160
    Controlling interest share $203160

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Chapter 3 Solutions

ADVANCED ACCOUNTING

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