EBK ADVANCED ACCOUNTING
12th Edition
ISBN: 9780100557567
Author: Cheng
Publisher: YUZU
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Question
Chapter 2, Problem 6.1E
(a)
To determine
Concept Introduction: The value analysis is more of a systematic production review which includes the purchase process and the design of product to make sure the costs are reduced. This can be done using a set of activities including the product designs to make use of parts that have low-tolerance which are affordable, to switch to the components that cost low, including standardization of the parts to ensure the volume discounts are achieved.
To Prepare: The value analysis schedule and the determination and distribution of excess schedules.
(a)
Expert Solution
Explanation of Solution
Given: Quail company purchases 80 of the common stock of Commo Company for $800000. At the time of purchase, Commo has framed its balance sheet.
Calculating fair value of total assets.
Fair value of total assets = Cash equivalents + Inventory + Land + Building + Equipment
Calculating net liabilities,
Net liabilities = Current liabilities + Bonds payable 
Now, calculate the fair value of net assets:
Fair value of net assets = Fair value of total assets - Liabilities payable = $1420000-$600000 = $820000
Value analysis schedule.
| Value analysis Schedule | Company-implied fair value | Parent Price (80%) | Non-controlling interest value (20%) |
| Company fair value | $1000000 | $800000 | $200000 |
| Fair value of net assets excluding | $820000 | $656000 | $164000 |
| Goodwill | $180000 | $1440000 | $36000 |
Along with total equity and excess of fair value over book value.
| Value analysis Schedule | Company-implied fair value | Parent Price (80%) | Non-controlling interest value (20%) |
| Fair value of subsidiary | $1000000 | $800000 | $200000 |
| Less: Book value of interest acquired Common stock Paid-in capital excess of par | $100000 $150000 $250000 | ||
| Total equity | $500000 | $500000 | $500000 |
| Interest acquired | 80% | 20% | |
| Book value (b) | $500000 | $400000 | $100000 |
| Excess of fair value over book value (a)-(b) | $500000 | $400000 | $100000 |
Inventory Adjustment = Fair value - book value
Land Adjustment = Fair value - book value
Building Adjustment = Fair value - book value
Equipment Adjustment = Fair value - book value
Adjustment of Identifiable Accounts
| Particulars | Adjustments | Worksheet key |
| Inventory | $1000000 | Debit D1 |
| Land | $100000 | Debit D2 |
| Building | $200000 | Debit D3 |
| Equipment | (30000) | Credit D4 |
| Goodwill | $180000 | Debit D5 |
| Total | $500000 |
(b)
To determine
Concept Introduction: The value analysis is more of a systematic production review which includes the purchase process and the design of product to make sure the costs are reduced. This can be done using a set of activities including the product designs to make use of parts that have low-tolerance which are affordable, to switch to the components that cost low, including standardization of the parts to ensure the volume discounts are achieved.
The value analysis schedule and the determination and distribution of excess schedules.
(b)
Expert Solution
Explanation of Solution
Given: Quail company purchases 80% of the common stock of Commo Company for $800000. At the time of purchase, Commo has framed its balance sheet.
Market value of shares = Total number of shares x value per share
= 4000 shares x $45 per share = $980000
Goodwill under market value
| Value analysis Schedule | Company-implied fair value | Parent Price (80%) | Non-controlling interest value (20%) |
| Fair value of company | $980000 | $800000 | $180000 |
| Fair value of net assets excluding goodwill | $820000 | $656000 | $164000 |
| Goodwill | $160000 | $144000 | $16000 |
Value analysis schedule
| Value analysis Schedule | Company-implied fair value | Parent Price (80%) | Non-controlling interest value (20%) |
| Fair value of subsidiary (a) | $980000 | $800000 | $180000 |
| Less: Book value of interest acquired Common stock Paid-in capital excess of par retained earnings | $100000 $150000 $250000 | ||
| Total equity | $500000 | $500000 | $500000 |
| Interest acquired | 80% | 20% | |
| Book value (b) | $500000 | $400000 | $100000 |
| Excess of fair value over book value (a)-(b) | $500000 | $400000 | $100000 |
Adjustment of identifiable accounts
| Particulars | Adjustments | Worksheet Key |
| Inventory | $50000 | Debit D1 |
| Land | $100000 | Debit D2 |
| Building | $200000 | Debit D3 |
| equipment | ($30000) | Credit D4 |
| Goodwill | $160000 | Debit D6 |
| Total | $480000 |
c.
To determine
Concept Introduction: The value analysis is more of a systematic production review which includes the purchase process and the design of product to make sure the costs are reduced. This can be done using a set of activities including the product designs to make use of parts that have low-tolerance which are affordable, to switch to the components that cost low, including standardization of the parts to ensure the volume discounts are achieved.
The value analysis schedule and the determination and distribution of excess schedules.
c.
Expert Solution
Explanation of Solution
Given: Quail company purchases 80 of the common stock of Commo Company for $800000. At the time of purchase, Commo has framed its balance sheet.
Value analysis schedule
| Value analysis Schedule | Company-implied fair value | Parent Price (80%) | Non-controlling interest value (20%) |
| Fair value of subsidiary (a) | $964000 | $800000 | $164000 |
| Less: Book value of interest acquired Common stock Paid-in capital excess of par retained earnings | $100000 $150000 $250000 | ||
| Total equity | $500000 | $500000 | $500000 |
| Interest acquired | 80% | 20% | |
| Book value (b) | $500000 | $400000 | $100000 |
| Excess of fair value over book value (a)-(b) | $464000 | $400000 | $64000 |
Adjustment of Identifiable Accounts
| Particulars | Adjustments | Worksheet Key |
| Inventory | $50000 | Debit D1 |
| Land | $100000 | Debit D2 |
| Building | $200000 | Debit D3 |
| equipment | ($30000) | Credit D4 |
| Goodwill | $144000 | Debit D6 |
| Total | $464000 |
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Chapter 2 Solutions
EBK ADVANCED ACCOUNTING
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