
a.
Prepare schedules for acquisition-date fair-value allocations and amortizations for Company A’s investment in Company B.
a.

Explanation of Solution
Schedules for acquisition-date fair-value allocations and amortizations for Company A’s investment in Company B:
Particulars | Amount | ||
Consideration transferred by Company A | $ 603,000 | ||
Fair value of non-controlling interest | $ 67,000 | ||
Total fair value of Company B | $ 670,000 | ||
Book value of Company B | $ (460,000) | ||
Excess fair value over book value | $ 210,000 | ||
Excess fair value allocated to: | Remaining life | Annual amortization | |
Land | $ 30,000 | $ - | |
Building | $ (20,000) | 10 years | $ (2,000) |
Equipment | $ 40,000 | 5 years | $ 8,000 |
Patent | $ 50,000 | 10 years | $ 5,000 |
Notes Payable | $ 20,000 | 5 years | $ 4,000 |
$ 90,000 | indefinite | $ - | |
Total | $ 15,000 |
Table: (1)
b.
Determine the method of accounting of Company A’s investment in Company B.
b.

Explanation of Solution
Company A is using the partial equity method for its investment in Company B. Company A is earning income from investment in Company B which is 90% of the earnings of Company B from its assets.
Thus,
c.
Determine the balances to be reported as of December 31, 2018, for this business combination.
c.

Explanation of Solution
The balances to be reported as of December 31, 2018, for this business combination:
Income statement | Company A | Company B | Consolidated Balances |
Revenues | $ (940,000) | $ (280,000) | $ (1,220,000) |
Cost of goods sold | $ 480,000 | $ 90,000 | $ 570,000 |
| $ 100,000 | $ 55,000 | $ 161,000 |
Amortization expense | $ - | $ 5,000 | |
Interest expense | $ 40,000 | $ 15,000 | $ 59,000 |
Equity in income of Company B | $ (108,000) | $ - | |
Net income | $ (428,000) | $ (120,000) | |
Consolidated net income | $ (425,000) | ||
Share of non-controlling interest in net income | $ 10,500 | ||
Share of controlling interest in net income | $ (414,500) | ||
| |||
Current assets | $ 610,000 | $ 250,000 | $ 860,000 |
Equipment | $ 873,000 | $ 150,000 | $ 1,047,000 |
Investment in Company B | $ 702,000 | $ - | $ - |
Building | $ 490,000 | $ 250,000 | $ 724,000 |
Patents | $ - | $ 40,000 | |
Land | $ 380,000 | $ 150,000 | $ 560,000 |
Goodwill | $ - | $ 90,000 | |
Total assets | $ 3,055,000 | $ 800,000 | $ 3,321,000 |
Notes payable | $ (860,000) | $ (230,000) | $ (1,078,000) |
Common stock | $ (510,000) | $ (180,000) | $ (510,000) |
| $ (1,685,000) | $ (390,000) | $ (1,658,000) |
Non-controlling interest in Company S | $ (75,000) | ||
Total liabilities and equity | $ (3,055,000) | $ (800,000) | $ (3,321,000) |
Table: (2)
Working note:
Statement of retained earnings | Company A | Company B | Consolidated Balances |
Retained earnings on 01/01 | $ (1,367,000) | $ (340,000) | $ (1,353,500) |
Net Income | $ (428,000) | $ (120,000) | $ (414,500) |
Dividends declared | $ 110,000 | $ 70,000 | $ 110,000 |
Retained earnings on 31/12 | $ (1,685,000) | $ (390,000) | $ (1,658,000) |
Table: (3)
Computation of the amount to be allocated to investments:
Computation of the amount to be allocated to non-controlling interest:
d.
Prepare a consolidation worksheet for Company A and Company B, as of December 31, 2018.
d.

Explanation of Solution
The consolidation worksheet for Company A and Company B, as of December 31, 2018:
Income statement | Company A | Company B | Debit | Credit | Non-controlling interest | Consolidated Balances |
Revenues | $ (940,000) | $ (280,000) | $ (1,220,000) | |||
Cost of goods sold | $ 480,000 | $ 90,000 | $ 570,000 | |||
Depreciation expense | $ 100,000 | $ 55,000 | $ 161,000 | |||
Amortization expense | $ - | E 80,000 | $ 5,000 | |||
Interest expense | $ 40,000 | $ 15,000 | $ 59,000 | |||
Equity in income of Company B | $ (108,000) | I 121,500 | $ - | |||
Net income | $ (428,000) | $ (120,000) | ||||
Consolidated net income | $ (425,000) | |||||
Share of non-controlling interest in net income | $ (13,500) | $ 10,500 | ||||
Share of controlling interest in net income | $ (414,500) | |||||
Balance Sheet | ||||||
Current assets | $ 610,000 | $ 250,000 | $ 860,000 | |||
Equipment | $ 873,000 | $ 150,000 | D $32,000 | S 8,000 | $ 1,047,000 | |
Investment in Company B | $ 702,000 | $ - | $ 63,000 | A $13,500 | $ - | |
$ 468,000 | ||||||
$ 175,500 | ||||||
$ 108,000 | ||||||
Building | $ 490,000 | $ 250,000 | $ 2,000 | I 18,000 | $ 724,000 | |
Patents | $ - | E 10,000 | $ 40,000 | |||
Land | $ 380,000 | $ 150,000 | $ 30,000 | $ 560,000 | ||
Goodwill | $ - | $ 90,000 | $ 90,000 | |||
Total assets | $ 3,055,000 | $ 800,000 | $ 3,321,000 | |||
Notes payable | $ (860,000) | $ (230,000) | $ 16,000 | $ 4,000 | $ (1,078,000) | |
Common stock | $ (510,000) | $ (180,000) | $ 180,000 | $ (510,000) | ||
Retained earnings on 12/31 | $ (1,685,000) | $ (390,000) | $ 52,000 | $ (1,658,000) | ||
Non-controlling interest in Company S | S $19,500 | $ (71,500) | $ (75,000) | |||
Total liabilities and equity | $ (3,055,000) | $ (800,000) | $ (3,321,000) |
Table: (4)
Working note:
Statement of retained earnings | Company A | Company B | Debit | Credit | Non-controlling interest | Consolidated Balances |
Retained earnings on 01/01 | $ (1,367,000) | $ (340,000) | $ 13,500 | $ (1,353,500) | ||
Net Income | $ (428,000) | $ (120,000) | $ (414,500) | |||
Dividends declared | $ 110,000 | $ 70,000 | D 63,000 | D 7,000 | $ 110,000 | |
Retained earnings on 31/12 | $ (1,685,000) | $ (390,000) | $ (1,658,000) |
Table: (5)
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