Chapter 3, Problem 3A.3AP

To determine

Consolidated financial statement and determination and distribution of excess income schedule

Consolidated financial statement are those kind of statement which contain consolidated financial information of subsidiary and holding company. In this elimination is made in controlling part also.

In determination and distribution of excess income schedule Through this price paid for subsidiary equity is compared with predetermine imbalance which is occurred in the consolidated worksheet because of elimination of in the investment account against the underlying subsidiary equity.

To calculate:

Through the information given in the question, prepare consolidation worksheet with the supporting of determination and distribution of excess schedule.

Answer to Problem 3A.3AP

Harvard Company purchase Bart Company has fair value of $\$7,20,000$ and goodwill of $\$70,000$ .Retained earning for controlling interest is $\$6,74,800$ and Non controlling interest is $\$58,200$

Explanation of Solution

Harvard company purchased $90\%$ common stock of Bart company for $\$7,20,000$ . On the date Building valued understated $\$1,80,000$ at the time of purchase which has remaining life of $20$ years so that will be depreciated by straight line method.

Step $1$- Calculation of Goodwill

Value Analysis Schedule	Company Implied Fair Value	Parent Price $\left(90\%\right)$	Non Controlling Interest $\left(10\%\right)$
Fair value of subsidiary	$\$8,00,000$	$\$7,20,000$	$\$77,000$
Fair value of net assets excluding Goodwill	$\$7,30,000$	$\$6,57,000$	$\$73,000$
Goodwill	$\$70,000$	$\$63,000$	$\$7,000$

Step $2$ - Schedule for Determination and Distribution Excess Schedule

Particulars	Company implied fair value	Parent price $\left(90\%\right)$	Non Controlling Interest $\left(10\%\right)$
Fair value of subsidiary (a)	$\$8,00,000$	$\$7,20,000$	$\$80,000$
Book value of interest acquired:
Common stock	$\$3,50,000$
Retained Earning	$\$2,00,000$
Total Equity	$\$5,50,000$	$\$5,50,000$	$\$5,50,000$
Interest Acquired		$\left(90\%\right)$	$\left(10\%\right)$
Book Value(b)	$\$5,50,000$	$\$4,95,000$	$\$55,000$
Excess of fair value over book value $\text{(a)-(b)=(c)}$	$\$2,50,000$	$\$2,25,000$	$\$25,000$
Adjustment of identifiable accounts	Adjustment	Life	Amortization per year
Building	$\$1,80,000$	$20$	$\$9,000$	A   $1$
Goodwill	$\$70,000$	-	-	A   $2$
Total	$\$2,50,000$

A represent non controlling interest portion of excess of fair value over book.

Step $3$ Calculation of Internally generated net income:

Bart Company income distribution

Particulars	Amount	Particular	Amount
Amortization(Building Depreciation)	$\$9,000$	Internally generated net income	$\$40,000$
		Adjusted income before tax	$\$31,000$
		Non Controlling interest profit share in subsidiary $\left(10\%\right)$	$\$3,100$
		Controlling interest share $\left(90\%\right)$	$\$27,900$

Harvard Company income distribution

Particular	Amount
Internally generated net income	$\$83,000$
Non Controlling interest profit share in subsidiary	$\$27,900$
Controlling interest share	$\$1,30,200$

Step $4$ Consolidated worksheet of Harvard company and Bart Company, for the year ended December $31,2017$

Particulars	Financial Statement		Elimination & Adjustments		Non- Controlling Interest	Consolidated
	Harvard	Bart	Debit	Credit
Income Statement
Net Sales	$(\$5,80,000)$	$(\$2,80,000)$	-	-	-	$(\$8,60,000)$
Cost of Goods Sold	$\$2,85,000$	$\$1,55,000$	-	-	-	$\$4,40,000$
Other Expenses	$\$1,40,000$	$\$55,000$	-	-	-	$\$1,95,000$
Depreciation	$\$72,000$	$\$30,000$	$\left(5\right)$$\$9,000$	-	-	$\$1,11,000$
Subsidiary Loss	$(\$9,000)$	-	$\left(2\right)$$\$9,000$	-	-	-
Net Income	$(\$92,000)$	$(\$40,000)$	-	-	-	-
Consolidated Income	-	-	-	-	-	$(\$1,14,000)$
NCI (see income distribution schedule)	-	-	-	-	$\left(\$3,100\right)$	-
Controlling Interest (see income distribution schedule)	-	-	-	-	-	$(\$1,10,900)$
Retained Earnings Statements:	-	-	-	-	-	-
Balance, January 1,2016- Harvard	$\left(\$4,84,000\right)$	-		$\left(1\right)$$$$$$\$1,08,000$	-	$\left(\$5,83,900\right)$
	-	-	$\left(5\right)$$\$8,100$	-	-	-
Balance, January 1,2016- Bart		$\left(\$3,20,000\right)$	$\left(3\right)$$\$2,88,000$	$$$\left(4\right)$$$$\$25,000$	$\left(\$56,100\right)$	-
	-	-	$\left(5\right)$$\left(\$900\right)$	-	-	-
Net Income (from Above)	$(\$92,000)$	$(\$40,000)$	-	-	$\left(\$3,100\right)$	$(\$1,10,900)$
Dividend Declared	$\$20,000$	$\$10,000$		$\left(2\right)$$\$9,000$	$\$1,000$	$\$20,000$
Balance, December 31, 2016	$\left(\$5,56,000\right)$	$\left(\$3,50,000\right)$	-	-	-	-
NCI in Retained Earning December 2016	-	-	-	-	$\left(\$58,200\right)$	-
Controlling Interest in Retained Earnings, December 2016	-	-	-	-	-	$\left(\$6,74,800\right)$
Consolidated Balance Sheet:
Cash	$\$3,30,000$	$\$1,70,000$	-	-	-	$\$5,00,000$
Inventory, December 2016	$\$2,60,000$	$\$3,40,000$	-	-	-	$\$6,00,000$
Investment in Bart	$\$7,20,000$	-	$\left(1\right)$$\$1,08,000$	-	-	-
	-	-	-	$\left(3\right)$$\$6,03,000$	-	-
	-	-	-	$\left(4\right)$$\$2,25,000$	-	-
Land	$\$99,000$	$\$1,50,000$	-	-	-	$\$2,49,000$
Buildings and Equipment	$\$5,70,000$	$\$3,00,000$	$\$1,80,000$	$\left(5\right)$$\$18,000$	-	$\$7,58,000$
Goodwill	-	-	$\left(4\right)$$\$70,000$	-	-	$\$70,000$
Current Liabilities	$(\$1,23,000)$	$(\$60,000)$	-	-	-	$(\$1,83,000)$
Bond Payable	-	$(\$2,00,000)$	-	-	-	$(\$2,00,000)$
Common Stock-Harvard	$(\$8,00,000)$	-	-	-	-	$(\$8,00,000)$
Paid in capital in excess of Par- Harvard	$\$5,00,000$	-	-	-	-	$(\$5,00,000)$
Common Stock- Bart	-	$(\$3,50,000)$	$\left(3\right)$$\$3,15,000$	-	$(\$35,000)$	-
Retained Earnings-December 31,2016-	$(\$5,56,000)$	$\left(\$3,50,000\right)$	-	-	-	-
Retained Earnings Non Controlling Interest, December 31, 2016	-	-	-	-	$(\$58,200)$	-
Retained Earnings Controlling Interest, December 31, 2016	-	-	-	-	-	$(\$6,74,800)$
Total NCI	-	-	-	-	$\$93,200$	$\$93,200$
Totals	$\$0$	$\$0$	$\$9,88,000$	$\$9,88,000$	$\$0$	$\$0$

Conclusion

Harvard Company purchase Bart Company has fair value of $\$7,20,000$ and goodwill of $\$70,000$ .Retained earnings for controlling interest is $\$6,74,800$ and Non controlling interest is $\$58,200$ .