Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
6th Edition
ISBN: 9780077862237
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 4, Problem 38P

a.

To determine

Prepare schedules for acquisition-date fair-value allocations and amortizations for Company A’s investment in Company B.

a.

Expert Solution
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Explanation of Solution

Schedules for acquisition-date fair-value allocations and amortizations for Company A’s investment in Company B:

Particulars Amount
 Consideration transferred by Company A $    603,000
 Fair value of non-controlling interest $      67,000
 Total fair value of Company B $    670,000
 Book value of Company B $  (460,000)
 Excess fair value over book value $    210,000
Excess fair value allocated to:Remaining lifeAnnual amortization
Land $   30,000 $               -
Building $ (20,000) 10 years $      (2,000)
Equipment $   40,000 5 years $       8,000
Patent $   50,000 10 years $       5,000
Notes Payable $   20,000 5 years $       4,000
Goodwill $   90,000 indefinite $               -
Total $     15,000

Table: (1)

b.

To determine

Determine the method of accounting of Company A’s investment in Company B.

b.

Expert Solution
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Explanation of Solution

Company A is using the partial equity method for its investment in Company B. Company A is earning income from investment in Company B which is 90% of the earnings of Company B from its assets.

Thus,

Incomefrominvestment=$120,000×90%=$108,000

c.

To determine

Determine the balances to be reported as of December 31, 2015, for this business combination.

c.

Expert Solution
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Explanation of Solution

The balances to be reported as of December 31, 2015, for this business combination:

Income statement Company A Company B Consolidated Balances
 Revenues($940,000)($280,000)($1,220,000)
 Cost of goods sold$480,000$90,000$570,000
 Depreciation expense$100,000$55,000$161,000
 Amortization expense$0$5,000
 Interest expense$40,000$15,000$59,000
 Equity in income of Company B($108,000)$0
 Net income($428,000)($120,000)
 Consolidated net income($425,000)
 Share of non-controlling interest in net income$10,500
 Share of controlling interest in net income($414,500)
 Balance Sheet
 Current assets$610,000$250,000$860,000
 Equipment$873,000$150,000$1,047,000
 Investment in Company B$702,000$0$0
 Building$490,000$250,000$724,000
 Patents$0$40,000
 Land$380,000$150,000$560,000
 Goodwill$0$90,000
 Total assets$3,055,000$800,000$3,321,000
 Notes payable($860,000)($230,000)($1,078,000)
 Common stock($510,000)($180,000)($510,000)
 Retained earnings on 12/31($1,685,000)($390,000)($1,658,000)
 Non-controlling interest in Company S($75,000)
 Total liabilities and equity($3,055,000)($800,000)($3,321,000)

Table: (2)

Working note:

Statement of retained earningsCompany ACompany BConsolidated Balances
Retained earnings on 01/01 $    (1,367,000) $     (340,000) $     (1,353,500)
Net Income $       (428,000) $     (120,000) $        (414,500)
Dividends declared $        110,000 $         70,000 $          110,000
Retained earnings on 31/12 $    (1,685,000) $     (390,000) $     (1,658,000)

Table: (3)

Computation of the amount to be allocated to investments:

Amountofinvestment=($180,000+$340,000)×90%=$468,000

Computation of the amount to be allocated to non-controlling interest:

Amountofnon-controlling interest=($180,000+$340,000)×10%=$52,000

d.

To determine

Prepare a consolidation worksheet for Company A and Company B, as of December 31, 2015.

d.

Expert Solution
Check Mark

Explanation of Solution

The consolidation worksheet for Company A and Company B, as of December 31, 2015:

Income statementCompany ACompany BDebitCreditNon-controlling interestConsolidated Balances
 Revenues($940,000)($280,000)($1,220,000)
 Cost of goods sold$480,000$90,000$570,000
 Depreciation expense$100,000$55,000$161,000
 Amortization expense$0E 80,000$5,000
 Interest expense$40,000$15,000$59,000
 Equity in income of Company B($108,000)I 121,500$0
 Net income($428,000)($120,000)
 Consolidated net income($425,000)
 Share of non-controlling interest in net income($13,500)$10,500
 Share of controlling interest in net income($414,500)
 Balance Sheet
 Current assets$610,000$250,000$860,000
 Equipment$873,000$150,000D $32,000S 8,000$1,047,000
 Investment in Company B$702,000$0$63,000A $13,500$0
$468,000
$175,500
$108,000
 Building$490,000$250,000$2,000I 18,000$724,000
 Patents$0E 10,000$40,000
 Land$380,000$150,000$30,000$560,000
 Goodwill$0$90,000$90,000
 Total assets$3,055,000$800,000$3,321,000
 Notes payable($860,000)($230,000)$16,000$4,000($1,078,000)
 Common stock($510,000)($180,000)$180,000($510,000)
 Retained earnings on 12/31($1,685,000)($390,000)$52,000($1,658,000)
 Non-controlling interest in Company SS $19,500($71,500)($75,000)
 Total liabilities and equity($3,055,000)($800,000)($3,321,000)

Table: (4)

Working note:

Statement of retained earningsCompany ACompany BDebitCreditNon-controlling interestConsolidated Balances
Retained earnings on 01/01($1,367,000)($340,000)$13,500($1,353,500)
Net Income($428,000)($120,000)($414,500)
Dividends declared$110,000$70,000D 63,000D 7,000$110,000
Retained earnings on 31/12($1,685,000)($390,000)($1,658,000)

Table: (5)

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