Saturday 3 November 2012

Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2013, for $706,560 cash. At the acquisition date, Sam’s total fair value, including the noncontrolling interest, was assessed at $883,200 although Sam’s book value was only $608,000. Also, several individual items on Sam’s financial records had fair values that differed from their book values as follows:

Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2013, for $706,560 cash. At the acquisition date, Sam’s total fair value, including the noncontrolling interest, was assessed at $883,200 although Sam’s book value was only $608,000. Also, several individual items on Sam’s financial records had fair values that differed from their book values as follows:

 



Book Value


Fair Value

Land

$

66,500

$

221,500

Buildings and equipment
(10-year remaining life)


369,000


334,000

Copyright (20-year life)


164,000


308,000

Notes payable (due in 8 years)


(139,000)


(127,800)


 

For internal reporting purposes, Father, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2013, for both companies.

 



Father



Sam


Revenues

$

(1,477,280

)

$

(653,150

)

Cost of goods sold


767,000



419,000


Depreciation expense


350,000



16,000


Amortization expense


0



8,200


Interest expense


50,400



5,950


Equity in income of Sam


(159,120

)


0









Net income

$

(469,000

)

$

(204,000

)














Retained earnings, 1/1/13

$

(1,430,000

)

$

(448,000

)

Net income (above)


(469,000

)


(204,000

)

Dividends paid


260,000



65,000









Retained earnings, 12/31/13

$

(1,639,000

)

$

(587,000

)














Current assets

$

1,034,320


$

478,700


Investment in Sam


813,680



0


Land


330,000



66,500


Buildings and equipment (net)


934,000



353,000


Copyright


0



155,800









Total assets

$

3,112,000


$

1,054,000















Accounts payable

$

(199,000

)

$

(168,000

)

Notes payable


(524,000

)


(139,000

)

Common stock


(300,000

)


(100,000

)

Additional paid-in capital


(450,000

)


(60,000

)

Retained earnings (above)


(1,639,000

)


(587,000

)








Total liabilities and equities

$

(3,112,000

)

$

(1,054,000

)















Note: Parentheses indicate a credit balance.

Using the acquisition method, prepare the worksheet to consolidate these two companies. (Leave no cells blank - be certain to enter "0" wherever required. Enter consolidation entries for noncontrolling interest in Sam Corporation in the order of (S) Elimination of subsidiary’s stockholders’ equity and (A) Allocation of subsidiary total fair value in excess of book value. Enter consolidation entries for Investment in Sam in the order of (S) Elimination of subsidiary’s stockholders’ equity (I) Elimination of intra-entity income and (A) Allocation of subsidiary total fair value in excess of book value. Input all amounts as positive values except for the credit balances which should be entered with the minus sign.)

 



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