Concept explainers
Determine the value that would be shown in Company P’s consolidated financial statements for each of the accounts listed:
Accounts | |
Inventory | Revenues |
Land | Additional paid-in capital |
Buildings and equipment | Expenses |
Franchise agreements | |
Retained earnings, 12/31 |
Answer to Problem 22P
Accounts | Consolidated value | |
Inventory | $ 670,000 | |
Land | $ 710,000 | |
Buildings and equipment | $ 930,000 | |
Franchise agreements | $ 440,000 | |
Goodwill | $ 80,000 | |
Revenues | $ 960,000 | |
Additional paid-in capital | $ 265,000 | |
Expenses | $ 940,000 | |
Retained earnings, 1/1 | $ 390,000 | |
Retained earnings, 12/31 | $ 430,000 |
Explanation of Solution
Value that would be shown in Company P’s consolidated financial statements for each of the accounts listed are as follows:
Accounts | Book values in Company P | Fair values in Company S | Consolidated value |
Inventory | $ 410,000 | $ 260,000 | $ 670,000 |
Land | $ 600,000 | $ 110,000 | $ 710,000 |
Buildings and equipment | $ 600,000 | $ 330,000 | $ 930,000 |
Franchise agreements | $ 220,000 | $ 220,000 | $ 440,000 |
Goodwill (1) | $ 80,000 | ||
Revenues (2) | $ 960,000 | ||
Additional paid-in capital(3) | $ 265,000 | ||
Expenses | $ 940,000 | ||
Retained earnings, 1/1 (4) | $ 390,000 | ||
Retained earnings, 12/31(5) | $ 430,000 |
Working note:
Computation of goodwill:
Particulars | Amount | Amount |
Consideration paid | $ 760,000 | |
Cash | $ 120,000 | |
Receivables | $ 300,000 | |
Inventory | $ 260,000 | |
Land | $ 110,000 | |
Building and equipment (net) | $ 330,000 | |
Franchise agreements | $ 220,000 | |
Accounts payable | $ (120,000) | |
Accrued expenses | $ (30,000) | |
Long-term liabilities | $ (510,000) | |
Fair value of net identifiable assets | $ 680,000 | |
Goodwill | $ 80,000 (1) |
Computation of revenues:
The value of revenues will be same as it is given for Company P which is $960,000. (2)
Computation of Additional paid-in capital:
Computation of Retained earnings, 1/1:
The Retained earnings, 1/1 will be same as it is given for Company P which is $390,000. (4)
Computation of Retained earnings, 12/31:
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Chapter 2 Solutions
FUNDAMENTALS OF ADVANCED ACCOUNTING >I
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