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30. (65 Minutes) (Consolidated totals and worksheet five years after
acquisition. Parent uses equity method. Includes goodwill impairment.)
a. Acquisition-date fair value allocations (given) Remaining Annual excess
life
amortizations
Land $90,000 -- --
earnings) less $5,000 in amortization expense computed above.
b.
Revenues = $1,535,000 (both balances are added together)
Cost of goods sold = $640,000 (both balances are added)
Depreciation expense = $307,000 (both balances are added along with
excess equipment depreciation)
subsidiary's dividends are intra-entity)
Retained earnings, 12/31/15 = $1,695,000 (the parent’s balance at
beginning of the year plus consolidated net income less consolidated
dividends declared)
Equipment = $959,000 (both book balances are added plus the
30. b. (continued)
Goodwill = $60,000 (represents the original acquisition-date
allocation)
Total assets = $3,143,000 (summation of all consolidated assets)
b. Worksheet is presented on following page.
c. If all goodwill from the Small investment was determined to be impaired,
Giant would make the following journal entry on its books:
Investment in Small 60,000
After this entry, the worksheet process would no longer require an
30. c. (continued)
GIANT COMPANY AND SMALL COMPANY
Consolidation Worksheet
For Year Ending December 31, 2015
Consolidation Entries Consolidated
Accounts Giant Small Debit Credit Totals
Revenues............................................................. (1,175,000) (360,000) (1,535,000)
Cost of goods sold.............................................. 550,000 90,000 640,000
Depreciation expense......................................... 172,000 130,000(E) 5,000 307,000
Net income (above)............................................. (588,000) (140,000) (588,000)
Dividends declared............................................. 310 ,000 110 ,000 (D) 110,000 310 ,000
Retained earnings 12/31............................... (1 ,695,000) (650 ,000) (1 ,695,000)
Buildings (net)..................................................... 304,000 419,000 723,000
Equipment (net)................................................... 648,000 286,000(A) 30,000 (E) 5,000 959,000
Goodwill............................................................... -0- -0- (A) 60,000 60 ,000
Total assets.................................................... 2 ,785,000 1 ,188,000 3 ,143,000
Liabilities.............................................................. (840,000) (368,000)(P) 10,000 (1,198,000)
31. (45 Minutes) (Consolidated totals and worksheet two years after acquisition.
Parent uses initial value method. Includes question comparing initial value
and equity methods).
a. 12/31/2015 Pinnacle Strata Adjustments and Eliminations Consolidated
Sales (7,000,000) (3,000,000) (10,000,000)
Net Income (1,560,000) (190,000) (1,690,000)
Retained earnings 1/1/15 (5,000,000) (1,350,000) S 1,350,000 *C 240,000 (5,240,000)
Net income (1,560,000) (190,000) (1,690,000)
Dividends declared 560,000 50,000 D 50,000 560,000
Retained earnings 12/31/15 (6,000,000) (1,490,000) (6,370,000)
Buildings (net) 5,572,000 2,040,000 A 270,000 E 30,000 7,852,000
Licensing agreements 1,800,000 E 20,000 A 80,000 1,740,000
Goodwill 350,000 A 400,000 750,000
Total Assets 12,000,000 5,705,000 15,000,000
Accounts payable (300,000) (715,000) P 85,000 (930,000)
b. Subsidiary income (190,000 – 10,000).......................................$180,000
1/1/15 retained earnings (5,000,000 + 240,000).....................$5,240,000
Investment in Strata:
Initial value basis ..............................................................$3,200,000
Conversion to equity as of 1/1/15.........................240,000
32.(30 Minutes) (Determine consolidated accounts and consolidation entries five
years after acquisition. Parent applies equity method.)
a. Fair value allocation and annual amortization
Remaining Annual excess
Allocation life amortizations
CONSOLIDATED TOTALS
Revenues = $850,000 (add the two book values)
Cost of goods sold = $380,000 (the accounts of both companies are added
together)
Depreciation expense = $179,000 (the accounts are added and include the
excess depreciation net adjustment of $9,000)
b. The method used by the parent is only important in determining the parent's
separate account balances (which are given here or are not needed) or
consolidation worksheet entries (which are not required in a.)
32. (continued)
c. Consolidation entry S
Common stock (Hill) ............................. 40,000
Additional paid-in capital (Hill) ............ 160,000
Retained earnings 1/1 .......................... 600,000
Customer list (net) ................................ 80,000
Buildings (net) ................................. 18,000
Investment in Hill ............................ 94,000
(To recognize unamortized allocation balances as of beginning of
current year)
of $14,000 for the year)
Consolidation entry D
Investment in Hill .................................. 40,000
Dividends declared ......................... 40,000
(To remove Intra-entity dividend declarations)
Customer list.................................... 5,000
(To recognize excess acquisition-date fair-value amortizations for
the period)
33. (30 Minutes) (Determine parent company and consolidated account
balances for a bargain purchase combination. Parent applies equity
method)
a. Acquisition-date fair value allocation and annual excess amortization
Consideration transferred ............. $1,183,000
Technology amortization................. 34,000
Equity earnings in Chandler........... $(199,000)
Fair value of net assets at acquisition-date $1,309,000
Equity earnings from Chandler...... 199,000
Dividends declared.......................... (40,000)
Investment in Chandler 12/31/15.... $1,468,000
Because a bargain purchase occurred, Chandler’s net asset fair value replaces the
33 continued (part b.)
Income Statement Brooks Chandler Adj. & Elim. Consolidated
Revenues (640,000) (587,000) (1,227,000)
Cost of goods sold 255,000 203,000 458,000
Gain on bargain purchase (126,000) -0- (126,000)
Depreciation and
Earnings
Retained earnings, 1/1 (1,835,000) (805,000) (S) 805,000 (1,835,000)
Net income (above) (560,000) (233,000) (560,000)
Dividends declared 100,000 40,000 (D) 40,000 100,000
Retained earnings, 12/31 (2,295,000) (998,000) (2,295,000)
Trademarks 134,000 221,000 355,000
Patented technology 395,000 410,000 (A) 204,000 (E) 34,000 975,000
Equipment 693,000 341,000 1,034,000
Total assets 3,033,000 1,404,000 3,139,000
Liabilities (203,000) (106,000) (309,000)
34. (35 minutes) (Contingent performance obligation and worksheet adjustments
for equity and initial value methods.)
a. Investment in Wolfpack, Inc. 500,000
Contingent performance obligation 35,000
Cash 465,000
b.
Cash 50,000
c. Equity Method
Common stock- Wolfpack 200,000
Retained earnings-Wolfpack 180,000
Investment in Wolfpack 380,000
Investment in Wolfpack 35,000
Dividends declared 35,000
Amortization expense 10,000
Royalty agreements 10,000
d. Initial Value Method
34. (continued)
Royalty agreements 90,000
35. (45 Minutes) (Prepare consolidation worksheet five years after acquisition.
Parent applies equity method. Includes question on push-down accounting.)
a. Allocation of Acquisition-Date Fair Value and Determination of
Amortization:
Storm’s acquisition-date fair value ..................... $140,000
Excess assigned to specific accounts: Remaining Annual excess
life amortizations
.......................................................Land $10,000 –
–
Equipment .................................. 5,000 5 yrs. $1,000
The equity in subsidiary earnings reflects the equity method. The initial
value method would have recorded $40,000 (100% of dividend declared)
b. Explanation of Consolidation Entries Found on Worksheet
Entry S—Eliminates stockholders' equity accounts of the subsidiary as
of the beginning of the current year.
Entry A—Recognizes remaining unamortized allocation from
acquisition-date fair value adjustments. As of the beginning of the
current year, equipment and formula have undergone four years of
amortization.
35. (continued) Palm and Subsidiary Consolidated Worksheet for year ended December 31, 2015
Consolidation Entries Consolidated
Accounts Palm Co. Storm Co. Debit Credit Totals
Income Statement
Revenues.......................................................... (485,000) (190,000) (675,000)
Statement of Retained Earnings
Retained earnings 1/1...................................... (659,000) (98,000)(S) 98,000 (659,000)
Net income (above).......................................... (261,000) (68,000) (261,000)
Dividends declared.......................................... 175 ,500 40 ,000 (D) 40,000 175 ,500
Retained earnings 12/31............................. (744 ,500) (126 ,000) (744 ,500)
Land ............................................................... 427,500 58,000(A) 10,000 495,500
Buildings and equipment (net)........................ 713,000 161,000(A) 1,000 (E) 1,000 874,000
Formula............................................................. -0- -0- (A) 16,000 (E) 1,000 15 ,000
Total assets................................................. 1 ,624,500 294 ,000 1 ,727,500
Current liabilities.............................................. (110,000) (19,000) (129,000)
Parentheses indicate a credit balance.
35. (continued)
c. If push-down accounting had been applied, the acquisition-date fair
value allocations to land ($10,000), equipment ($5,000), and formula
($20,000) would have been entered into the subsidiary's balances with
