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 consolidated worksheet for Company P and Company S for the year ended December 31, 2016.
Explanation of Solution
Prepare the consolidated worksheet for Company P and Company S for the year ended December 31, 2016:
Company P and Company S | |||||||||
Consolidation Worksheet | |||||||||
Year ending December 31, 2016 | |||||||||
Adjustments | |||||||||
Particulars | Company P | Company S | Debit | Credit | Consolidated income | NCI | Retained earnings | Consolidated Balances | |
Cash | $92,400 | $57,500 | $149,900 | ||||||
Accounts receivable | $130,000 | $36,000 | $14,000 | $152,000 | |||||
Inventory | $105,000 | $76,000 | $9,000 (EI) | $172,000 | |||||
Land | $100,000 | $100,000 | $200,000 | ||||||
Investment in Company S | $381,200 | $23,600 (CY1) | |||||||
$8,000 (CY2) | |||||||||
$193,600 (EL) | |||||||||
$172,000 (D) | $0 | ||||||||
Building | $800,000 | $150,000 | $100,000 | $1,050,000 | |||||
($250,000) | ($60,000) | $10,000 | ($320,000) | ||||||
Equipment | $210,000 | $220,000 | $50,000 | $64,000 | $416,000 | ||||
Accumulated Depreciation | ($115,000) | ($80,000) | $20,000 | ||||||
$5,000 | |||||||||
$9,000 | ($201,000) | ||||||||
Goodwill | $40,000 | $65,000 | $105,000 | ||||||
Accounts payable | ($70,000) | ($78,000) | $14,000 | ($134,000) | |||||
Bonds payable | ($200,000) | ($200,000) | |||||||
Common stock (Company S) | ($10,000) | $8,000 (EL) | ($2,000) | ||||||
Paid-in capital in excess of par (Company S) | ($90,000) | $72,000 (EL) | ($18,000) | ||||||
Retained earnings (Company S) | ($142,000) | $113,600 (EL) | $43,000 (NCI) | ||||||
$3,000 | |||||||||
$600 | ($67,800) | ||||||||
Common stock (Company P) | ($100,000) | ($100,000) | |||||||
Paid-in capital in excess of par (Company P) | ($800,000) | ($800,000) | |||||||
Retained earnings (Company P) | ($325,000) | $12,000 | |||||||
$8,000 (BI) | |||||||||
$35,000 | ($270,000) | ||||||||
Sales | ($800,000) | ($350,000) | $90,000 (IS) | ($1,060,000) | |||||
Cost of goods sold | $450,000 | $208,500 | $90,000 | ||||||
$9,000 | $8,600 | $568,900 | |||||||
Depreciation expense: Building | $30,000 | $5,000 | $5,000 (A) | $40,000 | |||||
Depreciation expense: Equipment | $25,000 | $23,000 | $10,000 (A) | ||||||
$9,000 | $49,000 | ||||||||
Other expenses | $140,000 | $92,000 | $232,000 | ||||||
Interest expense | $16,000 | $16,000 | |||||||
Gain on sale of fixed assets | ($24,000) | $24,000 | $0 | ||||||
Subsidiary income | ($23,600) | $23,600 (CY1) | |||||||
Dividend declared, Company S | $10,000 | $8,000 (CY2) | $2,000 | ||||||
Dividend declared, Company P | $20,000 | $20,000 | |||||||
$0 | $0 | $664,800 | $664,800 | ||||||
Consolidated net income | ($154,100) | $0 | |||||||
NCI | ($1,460) | $1,460 | |||||||
Controlling interest | ($155,560) | ($155,560) | |||||||
Total NCI | ($84,340) | ($84,340) | |||||||
Retained earnings of Controlling Interest | ($405,560) | $405,560 |
Table: (1)
Income Distribution Schedule of Company S | |
Particulars | Amount |
Net income (internally generated) | $ 29,500 |
Less: Amortization | $ (15,000) |
Less: Unrealized profit in ending inventory | $ (4,800) |
Less: Gain on equipment | $ (24,000) |
Add: Profit realized in beginning inventory | $ 3,000 |
Add: Gain realized in current year | $ 4,000 |
Adjusted income | $ (7,300) |
Non-controlling share of Company S | $ (1,460) |
Table: (2)
Income Distribution Schedule of Company P | |
Particulars | Amount |
Net income (internally generated) | $ 155,000 |
Share in adjusted income of Company S | $ (5,840) |
Add: Profit realized on beginning inventory | $ 5,600 |
Add: Gain realized in current year | $ 5,000 |
Less: Unrealized gain on ending inventory | $ (4,200) |
Controlling share of Company P | $ 155,560 |
Table: (3)
Working note 1:
Particulars | Amount | Periods | Amortization |
Building | $100,000 | 20 | $5,000 |
Equipment | $50,000 | 5 | $10,000 |
Goodwill | $65,000 | ||
Total adjustments | $215,000 |
Table: (4) Working note 2:
Particulars | Annual amortization | Current year | Prior years | Total |
Building | $5,000 | $5,000 | $5,000 | $10,000 |
Equipment | $10,000 | $10,000 | $10,000 | $20,000 |
Total | $15,000 | $15,000 | $15,000 | $30,000 |
Table: (5)
Working note 3:
Adjustments and eliminations:
- CY1: Income of subsidiary eliminated which is about the current year.
- CY2: The dividend of the current year eliminated.
- EL: The interest of Company P eliminated from equity of subsidiary.
- D: the excess of fair value distributed to NCI and Controlling interest.
- A: Amortization expense eliminated.
- IS: Inter-company sales eliminated.
- BI: The unrealized profit in beginning inventory eliminated.
- EI: Profit in ending inventory eliminated.
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