Business combination:
Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.
Value analysis:
The value analysis in a business combination is an essential part of determining the worth of the acquired entity. The
:
Prepare the formal consolidated income statement for the year ended March 31, 2017.
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Advanced Accounting
- On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.arrow_forwardCheese Partners has decided to close the store. At the date of closing, Cheese Partners had the following account balances: A competitor agrees to buy the inventory and store fixtures for $20,000. Prepare the journal entries detailing the liquidation, assuming that partners Colette and Swarma are sharing profits on a 50:50 basis:arrow_forwardOn January 1, 2015, Peanut Company acquired 80% of the common stock of Salt Company for $200,000. On this date, Salt had total owners’ equity of $200,000 (including retained earnings of $100,000). During 2015 and 2016, Peanut appropriately accounted for its investment in Salt using the simple equity method.Any excess of cost over book value is attributable to inventory (worth $12,500 more than cost), to equipment (worth $25,000 more than book value), and to goodwill. FIFO is used for inventories. The equipment has a remaining life of four years, and straight-line depreciation is used. On January 1, 2016, Peanut held merchandise acquired from Salt for $20,000. During 2016, Salt sold merchandise to Peanut for $40,000, $10,000 of which was still held by Peanut on December 31, 2016. Salt’s usual gross profit is 50%. On January 1, 2015, Peanut sold equipment to Salt at a gain of $15,000. Depreciation is being computed using the straight-line method, a 5-year life, and no salvage value.The…arrow_forward
- Detner International purchases 80% of the outstanding stock of Hardy Company for $1,600,000 on January 1, 2015. At the purchase date, the inventory, equipment, and patents of Hardy Company have fair values of $10,000, $50,000, and $100,000, respectively, in excess of their book values. The other assets and liabilities of Hardy Company have book values equal to their fair values. The inventory is sold during the month following the purchase. The two companies agree that the equipment has a remaining life of eight years and the patents 10 years. Onthe purchase date, the owners’ equity of Hardy Company is as follows:Common stock ($10 stated value) . . . . . . . . . . . . . . . . $1,000,000Additional paid-in capital in excess of par . . . . . . . . . 300,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000During 2015 and 2016, Hardy Company has income and pays dividends as…arrow_forwardOn January 1, 2015, P Corporation purchased 80% of S Company’s outstanding shares for ₱620,000. At that date, all of S Company’s assets and liabilities had market values approximately equal to their book values and no goodwill was included in the purchase price. The following information was available for 2015: Income from own operations of P Corporation, ₱150,000; Operating loss of S Company, ₱20,000. Dividends paid in 2015 by P Corporation, ₱75,000; by S Company to P Corporation, ₱12,000. On July 1, 2015, there was a downstream sale of equipment at a gain of ₱25,000. The equipment is expected to have a remaining useful life of 10 years from the date of sale. Also, on January 1, 2015, there was an upstream sale of furniture at a loss of ₱7,500. The furniture is expected to have a useful life of five years from the date of sale. Non-controlling interest is measured at fair market value. How much is the consolidated net income attributable to parent shareholders’ equity? A. ₱97,250B.…arrow_forwardOn January 1, 2018, Sledge had common stock of $270,000 and retained earnings of $410,000. During that year, Sledge reported sales of $280,000, cost of goods sold of $145,000, and operating expenses of $55,000. On January 1, 2016, Percy, Inc., acquired 80 percent of Sledge's outstanding voting stock. At that date, $75,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $35,000 to an undervalued building (with a 10-year remaining life). In 2017, Sledge sold inventory costing $15,000 to Percy for $30,000. Of this merchandise, Percy continued to hold $9,000 at year-end. During 2018, Sledge transferred inventory costing $15,750 to Percy for $35,000. Percy still held half of these items at year-end. On January 1, 2017, Percy sold equipment to Sledge for $19,500. This asset originally cost $31,000 but had a January 1, 2017, book value of $12,000. At the time of transfer, the equipment's remaining life was estimated to be five years.…arrow_forward
- On January 1, 2015, P Company acquired a 90% interest in S Company. During 2016, S Company sold merchandise to P Company at 25% above cost in the amount (selling price) of $203,700. At the end of the year, P Company had in its inventory one-third of the amount of goods purchased from S Company.On January 1, 2016, P Company sold equipment that had a book value of $83,600 to S Company for $118,100. The equipment had an estimated remaining life of four years.S Company reported net income of $116,100, and P Company reported net income of $293,000 from their independent operations (including sales to affiliates) for the year ended December 31, 2016.Calculate controlling interest in consolidated net income for the year ended December 31, 2016.arrow_forwardOn January 1, 2018, Sledge had common stock of $120,000 and retained earnings of $260,000. During that year, Sledge reported sales of $130,000, cost of goods sold of $70,000, and operating expenses of $40,000.On January 1, 2016, Percy, Inc., acquired 80 percent of Sledge’s outstanding voting stock. At that date, $60,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $20,000 to an undervalued building (with a 10-year remaining life).In 2017, Sledge sold inventory costing $9,000 to Percy for $15,000. Of this merchandise, Percy continued to hold $5,000 at year-end. During 2018, Sledge transferred inventory costing $11,000 to Percy for $20,000. Percy still held half of these items at year-end.On January 1, 2017, Percy sold equipment to Sledge for $12,000. This asset originally cost $16,000 but had a January 1, 2017, book value of $9,000. At the time of transfer, the equipment’s remaining life was estimated to be five years.Percy has…arrow_forwardPaggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015. During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity. 2014 Selected Data: Paggle Spillway Sales Revenue $600,000 $320,000 Cost of Goods Sold 320,000 155,000 Other Expenses 100,000 89,000 Net Income $180,000 $76,000 Dividends Paid 19,000…arrow_forward
- Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015. During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity. 2014 Selected Data: Paggle Spillway Sales Revenue $600,000 $320,000 Cost of Goods Sold 320,000 155,000 Other Expenses 100,000 89,000 Net Income $180,000 $76,000 Dividends Paid 19,000 0…arrow_forwardPaggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015. During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity. 2014 Selected Data: Paggle Spillway Sales Revenue $600,000 $320,000 Cost of Goods Sold 320,000 155,000 Other Expenses 100,000 89,000 Net Income $180,000 $76,000 Dividends Paid 19,000…arrow_forwardRefer to the preceding facts for Panther’s acquisition of Sandin common stock. On January 1, 2016, Sandin held merchandise sold to it from Panther for $20,000. During 2016, Panther sold merchandise to Sandin for $100,000. On December 31, 2016, Sandin held $25,000 of this merchandise in its inventory. Panther has a gross profit of 30%. Sandin owed Panther $15,000 on December 31 as a result of this intercompany sale. On January 1, 2015, Sandin sold equipment to Panther at a profit of $24,000. Panther also sold some fixed assets to nonaffiliates. Depreciation is computed over a 6-year life, using the straight-line method. 1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Sandin. 2. Complete a consolidated worksheet for Panther Company and its subsidiary Sandin Company as of December 31, 2016. Prepare supporting amortization and income distribution schedules.arrow_forward
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