Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
Question
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Chapter 3, Problem 3.11.2P
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 3.11.2P

The Fair value of subsidiary is $550000 parent price of $440000 and non-controlling interest value comes to $110000. 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 $86000 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$138000$110000$248000
    Accounts receivable$90000$55000$145000
    Inventory$120000$86000$206000
    Land$100000$60000$90000 (4)$250000
    Investment in S$480000)$28000(1)
    $8000(2)
    $225600(3)
    $270400(4)
    Buildings$800000$250000$130000(4)$1180000
    Acc depre($220000)($80000)$19500 (5)($319500)
    Equipment$150000$100000$30000 (4)$280000
    Acc depre($90000)($72000)$18000 (5)($180000)
    Goodwill$86000(4)$86000
    Current liabilities($60000)($102000)($162000)
    Bond payable($100000)($100000)
    Discount (premium)$4000 (4)
    $2400 (5)$1600
    Common stock- S($10000)$8000 (3)($2000)
    Paid in cap in excess of Par − S($90000)$72000 (3)($18000)
    RE- S($182000)$145600 (3)($99080)
    $5320(5)$67600(4)
    $400 (4)
    Common stock − P($100000)($100000)
    Paid in cap in excess of Par − P($900000)($900000)
    RE- P($371000)
    $1600 (4)
    $21280(5)($351320)
    Sales($800000)($350000)($1150000)
    COGS$450000$210000$660000
    Depe exp- Bldg$30000$15000$6500 (5)$51500
    Depre exp- equipment$15000$14000$6000 (5)$35000
    Other expenses$140000$68000$208000
    Interest exp$8000$800 (5)$8800
    Sub (dividend) Income($28000)$28000 (1)
    Div declared − S$10000$8000 (2)$2000
    Div declared- P$20000$20000
    Total$641500$641500
    Cons Net income($186700)
    To NCI (#6)$4340($4340)
    To CI$182360($182360)
    Total NCI($121420)($121420)
    RE CI($513680)($513680)

2. Determination of Value analysis schedule:-

    ParticularsCompany Implied ValueParent (80%)NCI (20%)
    Fair Value of Company$550000 ( working #1)$440000$110000
    Fair value of net assets excluding goodwill$464000 (Working #2)$371200$92800
    Goodwill$86000$68800$17200

3. Determination and Distribution of Excess schedule

    ParticularsCompany Implied Fair valueParent (100%)NCI (0%)
    Fair value of subsidiary (A)$550000$440000$110000
    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)$338000 ($480000-$212000)$270400$67600
    Adjustment of Identifiable accountsAdjustmentLife Amortization per year
    Inventory (Working #4)($2000)Credit 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 )($86000)Debit D6
    Total$338000

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 $440000

  =$44000080×100=$550000

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

  =$550000$464000=$86000

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$1600$2400A3
    Buildings20$6500$6500$13000$19500A4
    Equipment5$6000$6000$12000$18000A5
    Total amortizations$13300$13300$26600$39900

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

  =$350000[$210000+$15000+$14000+$68000+$8000]=$35000

S company income distribution

    ParticularAmountParticular Amount
    Current year amortizations$13300Internally generated income (Working #6)$35000
    Adjusted income before tax$21700
    NCI in subsidiary ( $21700×20%$4340
    Controlling interest share ( $21700×80%
    )
    $17360

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

  =$800000[$450000+$30000+$15000+$140000]=$165000

P company income distribution

    ParticularAmountParticular Amount
    Current year amortizations$13300Internally generated income (Working #7)$165000
    Controlling share of subsidiary$17360
    Controlling interest share $182360

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Advanced Accounting

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