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35. (Acquisition Method Consolidated Balances)
Adjustments
December 31, 2015 Paloma San Marco & Eliminations NCI Consolidated
Revenues (1,843,000) (675,000) (2,518,000)
Cost of goods sold 1,100,000 322,000 1,422,000
net income (437,000) (215,000)
Consolidated net income (450,500)
To noncontrolling interest (13,500) (13,500)
To Paloma Company (437,000)
Current Assets 1,204,000 430,000 1,634,000
Investment in San Marco 1,854,000 (D) 22,500 (S)769,500
(A)985,500 -0-
(I) 121,500
Customer base -0- -0- (A)720,000 (E) 80,000 640,000
Accounts Payable (485,000) (200,000) (685,000)
Notes Payable (542,000) (155,000) (697,000)
NCI in San Marco (S) 85,500
(A)109,500 (195,000)
(206,000) (206,000)
35. (Continued)
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $190,000
Relative fair values of identifiable net assets
equally by $22,500 as follows:
Fair value of San Marco Company (1,710,000 + 167,500) $1,877,500
Carrying amount acquired 725,000
Excess fair value 1,152,500
to customer base 800,000
* NCI at beginning of year
Common stock-subsidiary $400,000
APIC-subsidiary 60,000
Retained earnings-subsidiary 1/1 395,000
Total $855,000
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $167,500
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
36. (60 Minutes) (Consolidation worksheet and income statement with parent
using initial value method. Also consolidated balances with a control
premium paid by parent.)
a. Fair Value Allocation and Amortization
Consideration transferred by Holtz................ $576,000
accounts based on fair value: life amortizations
Building........................................................ 85,500
5 years.............................................$17,100
Trademark .................................................. 64 ,000
10 years............................................. 6,400
Change in subsidiary RE from 1/1/14 to 1/1/15........ $70,000
Excess amortization for 2014.................................... 23,500
Adjusted subsidiary RE increase.............................. $46,500
Percentage ownership by parent.............................. 80%
*C conversion entry.................................................... $37,200
of the noncontrolling interest for its share.
Entry I: Eliminates Intra-entity dividends declared by subsidiary and
recorded as income by parent.
Entry E: Recognizes amortization expense for current year.
Columnar entry—Recognizes net income attributable to noncontrolling
36. a. (continued) HOLTZ CORPORATION AND DEVINE, INC.
Consolidation Worksheet
For Year Ending December 31, 2015
Holtz Devine Consolidation
Entries Noncontrolling Consolidated
Accounts Corporation Inc. Debit Credit
Interest Totals
Sales (641,000) (399,000)
(1,040,000)
422,500
Dividend income (16 ,000) ___ _-0 - (I) 16,000
-0-
Separate company net income (186 ,000) (97 ,000)
NI attributable to Holtz Corp.
(228,800)
Retained earnings, 1/1 (762,000) (296,500) (S) 296,500 (*C)
37,200 (799,200)
Net income (above) (186,000) (97,000)
Current assets 121,000 120,500
241,500
Investment in Devine 576,000 -0- (*C) 37,200
(S)317,200 -0-
(A)296,000
244,000
Total assets 1 ,733,000 691 ,500
2,195,000
Liabilities (535,000) (218,000)
(753,000)
79,300
(A)
74,000 (153 ,300)
NCI in Devine, 12/31
(164,000) (164 ,000)
36. (continued)
b. HOLTZ CORPORATION AND DEVINE, INC.
Consolidated Income Statement
For Year Ending December 31, 2015
Sales $1,040,000
To Holtz Corporation $228 ,800
c. Consideration transferred by Holtz for 80% of Devine $576,000
Noncontrolling interest fair value ($4.76 × 20,000 shares) 95 ,200
Devine fair value $671,200
Fair value of Devine’s underlying net assets 476 ,000
acquisition-date fair value:
(S) Common stock-Devine 100,000
Retained earnings- Devine 1/1 296,500
Investment in Devine 317,200
Noncontrolling interest 79,300
Investment in Devine 195,200
Controlling
Noncontrolling
Interest Interest
Fair value at acquisition date $576,000 $95,200
37. (40 Minutes) (Determine consolidated balances.)
Acquisition-date subsidiary fair value (given).... $1,003,400
Book value of subsidiary (given) ........................ (690 ,000)
Fair value in excess of book value ..................... $313,400
Allocations to specific accounts based on difference
313,400
Total......................................................... -0-
Annual excess amortizations:
Buildings and equipment [$(24,000) ÷ 10 years] $(2,400)
Depreciation expense = $283,200 (add the two book values less $2,400
excess adjustment)
Amortization expense = $10,800 (add the two book values plus $4,700
excess adjustment)
Consolidated net income = $516,280 (revenues less expenses)
Net income attributable to noncontrolling interest = $44,280 ($226,000
reported subsidiary net income less $4,600 net excess amortization
expense multiplied by 20 percent outside ownership)
37. (continued)
Retained earnings, 12/31 = $1,487,000 (consolidated balance on 1/1 plus net
income to Padre Co. less Padre’s dividends declared) or simply the
parent’s RE because parent employs the equity method.
Total assets = $3,638,860
Accounts payable = $469,000 (add book values)
Notes payable = $700,900 (add the book values less $18,400 excess
allocation plus amortization)
37. (continued) Acquisition Method
Consolidation Entries Noncontrolling Consolidated
Accounts Padre Sierra Debit Credit Interest Totals
Revenues............................................. (1,394,980) (684,900) (2,079,880)
Cost of goods sold.............................. 774,000 432,000 1,206,000
Depreciation expense......................... 274,000 11,600 (E) 2,400 283,200
NI to noncontrolling interest........... (44,280) 44 ,280
NI to Padre Company ....................... (472 ,000)
Retained earnings 1/1 ........................ (1,275,000) (530,000) (S) 530,000 (1,275,000)
Net income (above) ............................ (472,000) (226,000) (472,000)
........................................................ (A) 250,720 -0-
Land .................................................... 360,000 65,000 (A) 225,000 650,000
Buildings and equipment (net).......... 909,000 275,400 (E) 2,400 (A) 24,000 1,162,800
Total assets ................................... 3 ,053,000 1 ,221,000 3 ,638,860
Common stock ................................... (300,000) (100,000) (S) 100,000 (300,000)
Additional paid-in capital................... (450,000) (60,000) (S) 60,000 (450,000)
Retained earnings 12/31....(above) … (1 ,487,000) (691 ,000) (1 ,487,000)
Total liab. and stockholders' equity (3 ,053,000) (1 ,221,000)1,265,920 1,265,920 (3 ,638,860)
38. (55 Minutes) (Consolidated worksheet)
a. Consideration transferred by Adams $603,000
Book value of Barstow (CS + RE 12/31/13) (460 ,000)
Excess fair value over book value 210,000
Excess fair value assigned to specific Remaining Annual excess
accounts based on fair value life amortizations
Land $30,000 — —
Buildings (20,000) 10 years ($2,000)
Equipment 40,000 5 years 8,000
b. Because investment income is exactly 90 percent of Barstow's reported
earnings, Adams apparently is applying the partial equity method.
c. d. Explanation of Consolidation Entries Found on Worksheet
Entry *C—Converts Adams's financial records from the partial equity method
to the equity method by recognizing amortization for 2014. Total expense
was $15,000 but only 90 percent (or $13,500) applied to the parent.
Columnar Entry—Recognizes noncontrolling interest's share of consolidated
net income as follows:
Net income attributable to noncontrolling interest (Columnar Entry)
Barstow reported net income ......................................................... $120,000
38. c. and d. (continued) ADAMS CORPORATION AND BARSTOW, INC.
Consolidation Worksheet-Acquisition Method
For Year Ending December 31, 2015 Noncontrolling Consolidated
Adams Corp. Barstow Inc. Debit Credit Interest Totals
Revenues (940,000) (280,000) (1,220,000)
Separate company net income (428,000) (120,000)
Consolidated net income (425,000)
NI to noncontrolling interest (10,500)
10,500
NI to Adams Corporation (414 ,500)
Current assets 610,000 250,000 860,000
Investment in Barstow 702,000 (D) 63,000 (*C) 13,500 -0-
(S) 468,000
(A) 175,500
(I) 108,000
Total assets 3 ,055,000 800 ,000 3 ,321,000
Notes payable (860,000) (230,000) (A) 16,000 (E) 4,000 (1,078,000)
Common stock (510,000) (180,000) (S) 180,000 (510,000)
Retained earnings, 12/31 (1,685,000) (390,000) (1,658,000)
(S) 52,000
