FUNDAMENTALS OF ADVANCED ACCOUNTING >I
6th Edition
ISBN: 9781307007350
Author: Hoyle
Publisher: MCG/CREATE
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Question
Chapter 6, Problem 47P
To determine
Determine consolidated financial totals for the given business combination.
Expert Solution & Answer
Explanation of Solution
The consolidated financial totals for the given business combination is as follows:
Company P and Company S | ||||||
Consolidation Worksheet | ||||||
Year ending December 31, 2018 | ||||||
Income statement | Company P | Company S | Debit | Credit | Consolidated Balances | |
Sales | ($800,000) | ($400,000) | (TI) 90,000 | ($1,110,000) | ||
Cost of goods sold | $528,000 | $260,000 | (G) 6,000 | (TI) 90,000 | $704,000 | |
Expenses | $180,000 | $130,000 | (E) 11,000 | (ED) 2,000 | $319,000 | |
Gain on sale of equipment | ($8,000) | $0 | (TA) 8,000 | $0 | ||
Net income | ($100,000) | ($10,000) | ($87,000) | |||
Balance Sheet | ||||||
Cash | $30,000 | $40,000 | ||||
$300,000 | $100,000 | (P) 28,000 | ||||
Inventory | $260,000 | $180,000 | (G) 6,000 | |||
Investment in Company S | $560,000 | $0 | (S) 450,000 | |||
(A) 110,000 | ||||||
Land, buildings, and equipment | $680,000 | $500,000 | (TA) 10,000 | |||
($180,000) | ($90,000) | (ED) 2,000 | (TA) 18,000 | |||
Intangible Asset | $0 | $0 | (A) 110,000 | (E) 11,000 | ||
Total assets | $1,650,000 | $730,000 | $1,879,000 | |||
Accounts payable | ($140,000) | ($90,000) | (P) 28,000 | ($202,000) | ||
Long-term liabilities | ($240,000) | ($180,000) | ($420,000) | |||
$0 | ($100,000) | (S)100,000 | $0 | |||
Common stock | ($620,000) | ($200,000) | (S) 200,000 | ($620,000) | ||
Additional paid-in capital | ($210,000) | $0 | ($210,000) | |||
($440,000) | ($160,000) | ($427,000) | ||||
Total liabilities and | ($1,650,000) | ($730,000) | $715,000 | $715,000 | ($1,879,000) |
Table: (1)
Working note:
Statement of retained earnings | Company P | Company S | Debit | Credit | Consolidated Balances | |
Retained earnings, 1/1 | ($400,000) | ($150,000) | (S) 150,000 | |||
Net income | ($100,000) | ($10,000) | ||||
Dividends declared | $60,000 | $0 | ||||
Retained earnings, 12/31 | ($440,000) | ($160,000) | ($427,000) |
Table: (2)
Computation of unrealized gross profit:
Particulars | Amount |
Rate of gross profit | 33.33% |
Inventory unsold at year end | $ 18,000 |
Unrealized gross profit | $ 6,000 |
Table: (3)
Computation of annual amortization:
Particulars | Amount |
Consideration paid | $ 560,000 |
Book value of Company S | $ 450,000 |
Excess fair value over book value | $ 110,000 |
Annual amortization of intangible asset (10 years) | $ 11,000 |
Table: (4)
Computation of gain on sale of equipment:
Particulars | Amount |
Carrying amount of equipment | $ 20,000 |
Book value of equipment | $ 12,000 |
Gain on sale | $ 10,000 |
Depreciation | $ 5,000 |
Accumulated depreciation | $ 5,000 |
Table: (5)
Worksheet adjustments:
Entry S | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
Common stock | $100,000 | |||
Preferred stock | $200,000 | |||
Retained earnings on 01/01/2018 | $150,000 | |||
Investment in Company S | $ 450,000 | |||
(being stock of subsidiary eliminated) | ||||
Entry A | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
Intangible asset | $110,000 | |||
Investment in Company S | $ 110,000 | |||
(being excess fair value transferred to intangible asset) | ||||
Entry E | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
Amortization expense | $ 11,000 | |||
Intangible asset | $ 11,000 | |||
(being amortization on intangible asset recorded) | ||||
Entry P | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
Accounts Payable | $ 28,000 | |||
Accounts Receivable | $ 28,000 | |||
(being intra-entity receivables and payables eliminated) | ||||
Entry TA | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit | Credit |
Equipment | $ 10,000 | |||
Gain on sale of equipment | $ 8,000 | |||
Accumulated Depreciation | $ 18,000 | |||
(Being excess depreciation and gain eliminated) |
Table: (6)
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Chapter 6 Solutions
FUNDAMENTALS OF ADVANCED ACCOUNTING >I
Ch. 6 - Prob. 1QCh. 6 - Prob. 2QCh. 6 - Prob. 3QCh. 6 - Prob. 4QCh. 6 - Prob. 5QCh. 6 - Prob. 6QCh. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - Prob. 9QCh. 6 - Prob. 10Q
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