Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
Question
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Chapter 4, Problem 42P

a.

To determine

Explain the manner in which Company T allocate Company A’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination.

a.

Expert Solution
Check Mark

Explanation of Solution

Allocation of Company A’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination:

Particulars Amount  
 Consideration transferred by Company T $      720,000  
 Fair value of non-controlling interest $      290,000  
 Total fair value of Company A $   1,010,000  
 Book value of Company A $    (840,000)  
 Excess fair value over book value $      170,000  
Excess fair value allocated to: Remaining lifeAnnual amortization
Patent $      100,000 5 years $      20,000
Goodwill $        70,000 indefinite $               -
Total   $      20,000

Table: (1)

b.

To determine

Explain the manner in which Company T allocate the goodwill from the acquisition across the controlling and non-controlling interests.

b.

Expert Solution
Check Mark

Explanation of Solution

Allocation of goodwill from the acquisition across the controlling and non-controlling interests:

Allocation of goodwillControlling interestNon-controlling interest
Fair value on date of acquisition $      720,000 $  290,000
Share in net assets $      658,000 $  282,000
Goodwill allocation $        62,000 $      8,000

Table: (2)

c.

To determine

Identify how Company T derive the Investment in Company A account balance at the end of 2018.

c.

Expert Solution
Check Mark

Explanation of Solution

The Investment in Company A account balance at the end of 2018:

Particulars Amount
Initial value on date of acquisition $      720,000
Share of Company T in net income of Company A $        35,000
Dividends in 2018 $      (28,000)
Balance of investment on 12/31/2018 $      727,000

Table: (3)

d.

To determine

Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables.

d.

Expert Solution
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Explanation of Solution

The worksheet to consolidate the financial statements of these two companies as of December 31, 2018:

Income statement Company T Company A Debit Credit Non-controlling interest Consolidated Balances
 Revenues $    (670,000) $    (400,000) S 200,000   $      (870,000)
 Operating expense $      402,000 $      280,000 E 10,000 S 140,000  $       552,000
 Equity in income of Company A $      (35,000)  I 35,000   $                   -
 Net income $    (303,000) $    (120,000)    
 Consolidated net income      $      (318,000)
 Share of non-controlling interest in net income     $     (15,000) $         15,000
 Share of controlling interest in net income      $      (303,000)
       
 Balance Sheet      
 Current assets $      481,000 $      390,000    $       871,000
 Investment in Company A $      727,000 $                 - D 28,000 $     588,000  
     $       35,000  
     $       70,000  
     $       62,000  $                   -
 Land $      388,000 $      200,000    $       588,000
 Buildings $      701,000 $      630,000    $    1,331,000
 Patents  $                 - A 100,000 E 10,000  $         90,000
 Goodwill  $                 - A 70,000   $         70,000
 Total assets $   2,297,000 $   1,220,000    $    2,950,000
       
 Liabilities $    (816,000) $    (360,000)    $   (1,176,000)
 Common stock $      (95,000) $    (300,000) $    300,000   $        (95,000)
 Additional paid-in capital $    (405,000) $      (20,000) $      20,000   $      (405,000)
 Retained earnings $    (981,000) $    (540,000)    $      (981,000)
 Non-controlling interest in Company A    S $25200  
     A $8,000 $   (290,000) 
     A 30,000  
      $   (293,000) $      (293,000)
 Total liabilities and equity $ (2,297,000) $ (1,220,000) $ 1,263,000 $  1,263,000  $    2,950,000

Table: (4)

Working note:

Statement of retained earningsCompany TCompany ADebitCreditNon-controlling interestConsolidated Balances
Retained earnings on 01/01 $    (823,000) $    (500,000) $    500,000   $      (823,000)
Net Income $    (303,000) $    (120,000)  S 40,00012,000 $      (303,000)
Dividends declared $      145,000 $        80,000  D 28,000  $       145,000
Retained earnings on 31/12 $    (981,000) $    (540,000)    $      (981,000)

Table: (5)

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