
Concept explainers
Business combination:
A business combination refers tothe combining of one or more business organizations in a single entity. Business combinations lead to the formation of combined financial statements. After business combination, the entities having separate control merge into one having control over all the assets and liabilities. Merging and acquisition are two types of business combinations.
Consolidated financial statements:
Consolidated financial statements refer to the combined financial statements of entities which are prepared at year-end. Prepared when one organization is either acquired by the other entity or two organizations merged to form a new entity, consolidated financial statements serve the purpose of both the entities about financial information.
Value analysis:
Value analysis in a business combination is an essential part of determining the worth of the acquired entity. This type of analysis helps compute
:
Prepare the consolidated worksheet for the year ended December 31, 2016.

Explanation of Solution
Prepare the consolidated worksheet for Company P and Company S for the year ended December 31, 2016:
Company J and Company C | ||||||||
Consolidation Worksheet | ||||||||
Year ending December 31, 2015 | ||||||||
Adjustments | ||||||||
Company J | Company C | Debit | Credit | Income | NCI | Consolidated Balances | ||
Inventory | $100,000 | $50,000 | $3,000 | $147,000 | ||||
Other Current assets | $126,000 | $180,000 | $306,000 | |||||
Investment in Company C | $413,000 | $75,000 | ||||||
$27,000 | ||||||||
$312,000 | ||||||||
$53,000 | ||||||||
Land | $50,000 | $50,000 | $100,000 | |||||
Building and Equipment | $350,000 | $320,000 | $20,000 | $690,000 | ||||
($100,000) | ($60,000) | $10,000 | ($170,000) | |||||
Goodwill | $30,000 | $30,000 | ||||||
Other Intangible assets | $20,000 | $20,000 | ||||||
Current liabilities | ($120,000) | ($40,000) | ($160,000) | |||||
Bonds payable | ($100,000) | ($100,000) | ||||||
Other long-term liabilities | ($200,000) | ($200,000) | ||||||
Common stock (Company J) | ($200,000) | ($200,000) | ||||||
Paid-in capital in excess of par (Company J) | ($100,000) | ($100,000) | ||||||
Retained earnings (Company J) | ($214,000) | $3,500 | $0 | |||||
$15,333 | ($195,167) | |||||||
Common stock (Company C) | ($50,000) | $45,000 | ($5,000) | |||||
Paid-in capital in excess of par (Company C) | ($100,000) | $90,000 | ($10,000) | |||||
Retained earnings (Company C) | ($190,000) | $171,000 | ($29,833) | |||||
$15,000 | ||||||||
$1,500 | ||||||||
$2,667 | ||||||||
Sales | ($520,000) | ($450,000) | $50,000 | ($920,000) | ||||
Cost of goods sold | $300,000 | $260,000 | $3,000 | $50,000 | $513,000 | |||
Operating expenses | $120,000 | $100,000 | $5,000 | $225,000 | ||||
Income of subsidiary | ($75,000) | $75,000 | ||||||
Dividend income for Company C | $50,000 | $30,000 | $6,000 | $27,000 | $3,000 | $50,000 | ||
Purchased income | $6,000 | $6,000 | ||||||
$0 | $0 | $545,000 | $545,000 | |||||
Consolidated net income | ($176,000) | $0 | ||||||
NCI | $8,200 | ($8,200) | ||||||
Controlling interest | ($167,800) | ($167,800) | ||||||
Total NCI | ($50,033) | ($50,033) | ||||||
Retained earnings of Controlling Interest | ($312,967) | $312,967 |
Table: (1)
Working note 1:
Prepare the determination and distribution of excess schedule:
Value analysis schedule | Company-Implied fair value | Parent price (70%) | Non-controlling interest value (30%) |
Fair value of subsidiary | $350,000 | $245,000 | $105,000 |
Fair value of net assets excluding goodwill | $300,000 | $210,000 | $90,000 |
Goodwill | $50,000 | $35,000 | $15,000 |
Determination and distribution of excess schedule | |||
Particulars | Company Implied fair value | Parent price (70%) | Non-controlling interest value (30%) |
Fair value of subsidiary (a) | $350,000 | $245,000 | 105000 |
Book value of interest acquired: | |||
Common stock | $50,000 | ||
Paid-in capital in excess of par | $100,000 | ||
Retained earnings | $150,000 | ||
Total equity | $300,000 | ||
Interest acquired | 70% | 30% | |
Book value (b) | $300,000 | $210,000 | $90,000 |
Excess of fair value over book value [c] = (a) - (b) | $50,000 | $35,000 | $15,000 |
Table: (2)
The analysis would be performed by first calculating the amount of debit to retained earnings of the parent company.
Particulars | Amount | Amount |
Consideration paid | $ 92,000 | |
Less: Interest acquired | ||
Common stock | $ 50,000 | |
Paid-in-capital in excess of par | $ 100,000 | |
Retained earnings | $ 190,000 | |
Net income (4 months) | $ 30,000 | |
Total | $ 370,000 | |
Interest acquired | 20% | $ 74,000 |
Excess amount | $ 18,000 | |
Adjustments: | ||
Equipment | $ 2,667 | |
Debit to retained earnings of parent company | $ 15,333 |
Table: (3)
Working note 3:
Compute the balance which will be appearing in the Investment in Company C in the subsidiary income as on December 31, 2016:
Particulars | Amount | Amount |
Cost of the investment in Company C | $ 245,000 | |
Add: Income of Company C in 2015 | $ 42,000 | $ 287,000 |
Investment Purchased as on May 1, 2016 | $ 92,000 | |
Add: Income of Company C in 2016 | $ 75,000 | $ 167,000 |
Less: Dividend for 2015 | $ (14,000) | |
Dividend for 2016 | $ (27,000) | $ (41,000) |
Investment as on December 31, 2016 | $ 413,000 |
Table: (4)
Want to see more full solutions like this?
Chapter 7 Solutions
Advanced Accounting
- Please don't use AI And give correct answer .arrow_forwardLouisa Pharmaceutical Company is a maker of drugs for high blood pressure and uses a process costing system. The following information pertains to the final department of Goodheart's blockbuster drug called Mintia. Beginning work-in-process (40% completed) 1,025 units Transferred-in 4,900 units Normal spoilage 445 units Abnormal spoilage 245 units Good units transferred out 4,500 units Ending work-in-process (1/3 completed) 735 units Conversion costs in beginning inventory $ 3,250 Current conversion costs $ 7,800 Louisa calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Mintia that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the…arrow_forwardQuick answerarrow_forward
- Financial accounting questionarrow_forwardOn November 30, Sullivan Enterprises had Accounts Receivable of $145,600. During the month of December, the company received total payments of $175,000 from credit customers. The Accounts Receivable on December 31 was $98,200. What was the number of credit sales during December?arrow_forwardPaterson Manufacturing uses both standards and budgets. For the year, estimated production of Product Z is 620,000 units. The total estimated cost for materials and labor are $1,512,000 and $1,984,000, respectively. Compute the estimates for: (a) a standard cost per unit (b) a budgeted cost for total production (Round standard costs to 2 decimal places, e.g., $1.25.)arrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
