Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5.1.1E
To determine
Concept Introduction:
Consolidation of accounts: When a company acquires significant influence in another company then that company known as holding company. Holding a company is needed to consolidate its accounts with a subsidiary. In consolidation only parent company’s
To choose: The correct option.
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Assume that Company A acquires 70 per cent of Company B for a cash price of $14 million when the share capital and reserves of Company B are:
Share capital
$8 million
Retained earnings
$2 million
$10 million
What amount of goodwill will be shown in the consolidated statement of financial position pursuant to AASB 3 assuming that any non-controlling interest in the acquirer is measured at fair value?
Pass the necessary consolidation journal entries and the journal entries to record the non-controlling interest if the non-controlling interest in the acquirer is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.
If PROMDI Co., a new company would acquire the net assets of CARDO Co and SYANO Co. PROMDI Co will be issuing 30,000 shares to CARDO and 12,000 shares to SYANO. The following is the balance sheet of PROMDI Co, followed by the fair values and additional unpaid costs incurred by PROMDI in the acquisition:
Compute for the Consolidated Equity at the date of acquisition.
Consolidated Worksheet Preparation
You will be creating and entering formulas to complete four worksheets. The first objective is to demonstrate the effect of different methods of accounting for the investments (equity, initial value, and partial equity) on the parent company’s trial balance and on the consolidated worksheet subsequent to acquisition. The second objective is to show the effect on consolidated balances and key financial ratios of recognizing a goodwill impairment loss.
Project Scenario
Pecos Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash on January 1, 2017, when Suaro had the following balance sheet:(THIS IS IN THE PICTURE)
Following is the consolidated information worksheet.
December 31, 2018, trial balances
Pecos
Suaro
revenues
$ (1,052,000)
$ (427,000)
operating expenses
$ 821,000
$ 262,000
goodwill impairment loss
?
income of Suaro
?
net income
?
$…
Chapter 5 Solutions
Advanced Financial Accounting
Ch. 5 - Where is the balance assigned to the...Ch. 5 - Why must a noncontrolling interest be reported in...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - Prob. 5.5QCh. 5 - Prob. 5.6QCh. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Under what Circumstances would a parent company...Ch. 5 - Prob. 5.12QCh. 5 - Prob. 5.13QCh. 5 - Prob. 5.14AQCh. 5 - Prob. 5.15AQCh. 5 - Consolidation Worksheet Preparation The newest...Ch. 5 - Prob. 5.2CCh. 5 - Prob. 5.3CCh. 5 - Prob. 5.4CCh. 5 - Prob. 5.5CCh. 5 - Prob. 5.1.1ECh. 5 - Prob. 5.1.2ECh. 5 - Prob. 5.1.3ECh. 5 - Prob. 5.1.4ECh. 5 - Prob. 5.2.1ECh. 5 - Prob. 5.2.2ECh. 5 - Prob. 5.2.3ECh. 5 - Prob. 5.2.4ECh. 5 - Prob. 5.2.5ECh. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Balance Sheet Worksheet Problem Company owns 90...Ch. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - Prob. 5.8.1ECh. 5 - Prob. 5.8.2ECh. 5 - Prob. 5.8.3ECh. 5 - Prob. 5.8.4ECh. 5 - Prob. 5.8.5ECh. 5 - Prob. 5.8.6ECh. 5 - Prob. 5.8.7ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Prob. 5.12ECh. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17AECh. 5 - Prob. 5.18AECh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21.1PCh. 5 - Multiple-Choice Questions on Applying the Equity...Ch. 5 - Prob. 5.21.3PCh. 5 - Prob. 5.21.4PCh. 5 - Prob. 5.22PCh. 5 - Computation of Account Balances Pencil Company...Ch. 5 - Prob. 5.24PCh. 5 - Equity Entries with Differential On January 1,...Ch. 5 - Equity Entries with Differential Plug Corporation...Ch. 5 - Prob. 5.27PCh. 5 - Prob. 5.28PCh. 5 - Prob. 5.29P
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- Assume that Company A acquires 70 per cent of Company B for a cash price of $14 million when the share capital and reserves of Company B are: Share capital $8 million Retained earnings $2 million $10 million. A)Pass the necessary consolidation journal entries and the journal entries to record the non-controlling interest if the non-controlling interest in the acquirer is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. b) What are some of the implications of allowing the group to have two options in accounting for goodwill on consolidation?arrow_forwardIf PROMDI Co., a new company would acquire the net assets of CARDO Co and SYANO Co. PROMDI Co will be issuing 30,000 shares to CARDO and 12,000 shares to SYANO. The following is the balance sheet of PROMDI Co, followed by the fair values and additional unpaid costs incurred by PROMDI in the acquisition: REQUIREMENTS:A. GoodwillB. Consolidated Total Assets at the date of acquisitionC. Consolidated Total Liabilities at the date of acquisitionD. Consolidated Equity at the date of acquisitionarrow_forwardPushdown Accounting Assume a parent company acquires its subsidiary by paying $1,700,000 for all of the outstanding voting shares of the investee. On the acquisition date, subsidiary's assets and liabilities have individual fair values that equal their book values, except for property equipment with a fair value greater than book value by $150,000 and license with a fair value greater than book value by $250,000. The parent and subsidiary have the following balance sheets immediately after the acquisition, but before any pushdown adjustments by the subsidiary: Parent Parent Subsidiary Assets: Cash & receivables $ 800,000 $ 350,000 Inventory 600,000 200,000 Property & equipment, net 2,300,000 1,025,000 Equity investment 1,700,000 Licenses - 275,000 $ 5,400,000 $ 1,850,000 Liabilities and stockholders' equity: Current liabilities $ 400,000 $ 400,000 Other liabilities 300,000 - Note payable - 600,000 Common stock 1,670,000…arrow_forward
- Choose the correct. A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next year. In a step acquisition of this type, the original 32 percent acquisition should bea. Maintained at its initial value.b. Adjusted to its equity method balance at the date of the second acquisition.c. Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded.d. Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid-in capital.arrow_forwardIf PROMDI Co., a new company would acquire the net assets of CARDO Co and SYANO Co. PROMDI Co will be issuing 30,000 shares to CARDO and 12,000 shares to SYANO. The following is the balance sheet of PROMDI Co, followed by the fair values and additional unpaid costs incurred by PROMDI in the acquisition: compute for the consolidated total assets at the date of acquisitionarrow_forwardChoose the correct. According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should bea. Capitalized as part of the overall fair value acquired in the merger.b. Recorded as an expense in the period the merger takes place. c. Included in recognized goodwill.d. Written off over a five-year maximum useful life.arrow_forward
- Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains. Refer to Fact Pattern 31-1. Outlook held rights in certain real property. With regard to these assets, in the merger Pinnacle assumes a. all of Outlook’s assets. b. an amount of assets equal to the ratio of the firms’ pre-merger market values. c. none of Outlook’s assets. d. only those assets acquired after the merger was proposed.arrow_forwardAssume that Company A acquires 70 per cent of Company B for a cash price of $14 million when the share capital and reserves of Company B are: Share capital$8 millionRetained earnings$2 million $10 millionPass the necessary consolidation journal entries and the journal entries to record the non-controlling interest if the non-controlling interest in the acquirer is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assetsarrow_forwardFor each of the following independent intra-group transaction scenarios, assume that the consolidation process is done on 31 December 2020. Required: (a) Prepare the necessary consolidation journal entries in each scenario. Preston Ltd owns 80% share capital of Sutherland Ltd. The tax rate is 30%. (narrations are not required). Scenario 3: On 1 July 2018, Preston Ltd sold an item of machinery to Sutherland Ltd for $900,000. Preston Ltd originally purchased the machinery for $1,600,000 on 1 January 2016. The original estimated useful life was 5 years but at the time of the sale the remaining useful life was estimated to be 4 years by Sutherland Ltd. The expected residual value of the machinery is estimated to be $nil by Sutherland Ltd. ANSWER HERE: Date Account Name Debit Creditarrow_forward
- Companies X, Y and Z, parties to a consolidation, have the following data: X Co Y Co Z CoNet assets P400,000 P600,000 P1,000,000Average annual earnings 60,000 60,000 80,000The parties collectively agreed that the new corporation, AA Co will issue a single class of stock based on the earnings ratio. What is the stock distribution ratio to companies X, Y and Z, respectively?arrow_forwardParent Company purchases 80% of the outstanding shares of Subsidiary Company for P9,000,000. The carrying value of SubsidiaryCompany’s net assets at the time of acquisition was P6,000,000 and had a fair value of P8,000,000. Determine the following:1. Goodwill arising from the consolidation if it is to be computed using the proportionate basis or “PartialGoodwill”2. Non-controlling arising from the consolidation if it is to be computed using the proportionate basis or“Partial Goodwill”3. Goodwill arising from the consolidation if it is to be computed using the full (fair value basis of“Full/Gross-up” Goodwill, assuming the cost of acquisition includes a control premium of P400,000.arrow_forwardPenny Manufacturing Company acquired 75 percent of Saul Corporation stock at underlying book value. At the date of acquisition, the fair value of the noncontrolling interest was equal to 25 percent of Saul’s book value. The balance sheets of the two companies for January 1, 20X1, are as follows: On January 2, 20X1, Penny purchased an additional 2,500 shares of common stock directly from Saul for $150,000. Required:a. Prepare the consolidation entry needed to complete a consolidated balance sheet worksheet immediately following the issuance of additional shares to Penny. b. Prepare a consolidated balance sheet worksheet immediately following the issuance of additional shares to Penny.arrow_forward
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