Concept explainers
a.
Compute the amount of
a.
Explanation of Solution
Computation of amount of goodwill recognized in Company H’s acquisition of Company Z and the allocation of goodwill to the controlling and non-controlling interest:
Particulars | Amount | |
Consideration transferred by Company H | $ 480,000 | |
Fair value of non-controlling interest | $ 260,000 | |
Total fair value of Company Z on January 1, 2017 | $ 740,000 | |
Book value of Company Z on January 1, 2017 | $ 260,000 | |
Excess fair value over book value | $ 480,000 | |
Allocation to equipment (5 years) | $ 55,000 | |
Allocation to patent (10 years) | $ 285,000 | $ 340,000 |
Goodwill | $ 140,000 |
Table: (1)
Allocation of goodwill | Controlling interest | Non-controlling interest |
Fair value on date of acquisition | $ 480,000 | $ 260,000 |
Share in net assets (60% and 40%) | $ 360,000 | $ 240,000 |
Goodwill allocation | $ 120,000 | $ 20,000 |
Table: (2)
Working note:
Identifiable net assets on acquisition date | $ 14,000 |
Current assets | $ 323,000 |
Property, plant and equipment | $ 475,000 |
Liabilities | $(212,000) |
Total fair value of net identifiable assets | $ 600,000 |
Table: (3)
b.
Show how Company H determined its December 31, 2018, Investment in Company Z account balance.
b.
Explanation of Solution
Investment in Company Z account balance on December 31, 2018:
Particulars | Amount |
Initial value | $ 480,000 |
Change in | $ 81,900 |
Excess amortization amount in 2017 | $ (23,700) |
Investment in Company Z on 12/31/2017 | $ 538,200 |
Equity income in 2018 | $ 42,300 |
Dividends in 2018 | $ (18,000) |
Investment in Company Z on 12/31/2018 | $ 562,500 |
Table: (4)
Working note:
Equity in Company Z earnings: | |
Net income of Company Z | $ 110,000 |
Excess amortization | $ (39,500) |
Adjusted net income | $ 70,500 |
Share of Company H | 60% |
Equity income in 2018 | $ 42,300 |
Table: (5)
c.
Prepare a worksheet to determine the amounts that should appear on Company H’s December 31, 2018, consolidated financial statements.
c.
Explanation of Solution
Worksheet to determine the amounts that should appear on Company H’s December 31, 2018, consolidated financial statements:
Income statement | Company H | Company Z | Debit | Credit | Non-controlling interest | Consolidated Balances |
Revenues | $ (640,500) | $ (428,500) | $ (1,069,000) | |||
Cost of goods sold | $ 325,000 | $ 200,000 | $ 525,000 | |||
| $ 80,000 | $ 34,000 | E11,000 | $ 125,000 | ||
Amortization expense | $ 14,000 | $ 21,000 | E 28,500 | $ 63,500 | ||
Other operating expenses | $ 52,000 | $ 63,500 | $ 115,500 | |||
Equity in income of Company Z | $ (42,300) | I 42,300 | $ - | |||
Net income | $ (211,800) | $ (110,000) | ||||
Consolidated net income | $ (240,000) | |||||
Share of non-controlling interest in net income | $(28,200) | $ 28,200 | ||||
Share of controlling interest in net income | $ (211,800) | |||||
Balance Sheet | ||||||
Current assets | $ 125,000 | $ 81,500 | $ 206,500 | |||
Investment in Company S | $ 562,500 | $ - | D 18,000 | $ 237,900 | ||
$ 180,300 | $ - | |||||
$ 120,000 | ||||||
$ 42,300 | ||||||
Property, plant and equipment | $ 837,000 | $ 259,000 | $ 44,000 | E11,000 | $ 1,129,000 | |
Patents | $ 149,000 | $ 147,500 | A 256,500 | E 28,500 | $ 524,500 | |
Goodwill | $ - | $ - | A 140,000 | $ 140,000 | ||
Total assets | $ 1,673,500 | $ 488,000 | $ 2,000,000 | |||
Liabilities | $ (371,500) | $ (11,500) | $ (383,000) | |||
Common stock | $ (320,000) | $ (100,000) | $ 100,000 | $ (320,000) | ||
Non-controlling interest opening | $ 158,600 | |||||
$ 120,200 | ||||||
Non-controlling interest closing | $ 20,000 | $(298,800) | $ (315,000) | |||
Retained earnings | $ (982,000) | $ (376,500) | $ (982,000) | |||
Total liabilities and equity | $ (1,673,500) | $ (488,000) | $ 936,800 | $ 936,800 | $ 2,000,000 |
Table: (6)
Working note:
Statement of retained earnings | Company H | Company Z | Debit | Credit | Non-controlling interest | Consolidated Balances |
Retained earnings on 01/01 | $ (820,200) | $ (296,500) | $ 296,500 | $ (820,200) | ||
Net Income | $ (211,800) | $ (110,000) | $ (211,800) | |||
Dividends declared | $ 50,000 | $ 30,000 | D 18,000 | D 12,000 | $ 50,000 | |
Retained earnings on 31/12 | $ (982,000) | $ (376,500) | $ (982,000) |
Table: (7)
Computation of consolidated net income allocated to non-controlling interest:
Particulars | Amount |
Net income of Company Z | $ 110,000 |
Excess depreciation | $ (11,000) |
Excess amortization | $ (28,500) |
Adjusted net income | $ 70,500 |
Percentage of non-controlling interest | 40% |
Net income allocated to non-controlling interest | $ 28,200 |
Table: (8)
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Chapter 4 Solutions
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