Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-41
P4-25 (continued)
b.
Teresa Corporation and Subsidiary
Consolidated Balance Sheet
January 1, 20X4
Cash and Receivables
$ 60,000
Inventory
135,000
Land
170,000
Buildings and Equipment
$575,000
Less: Accumulated Depreciation
(175,000)
400,000
Goodwill
30,000
Total Assets
$795,000
Accounts Payable
$ 75,000
Notes Payable
150,000
Common Stock
$300,000
Retained Earnings
270,000
570,000
Total Liabilities and
Stockholders‘ Equity
$795,000
P4-26 Computation of Consolidated Balances
a.
Inventories ($110,000 + $170,000)
$280,000
b.
Buildings and Equipment (net) ($350,000 + $375,000)
$725,000
c.
Investment in Decibel stock will be fully eliminated and will not
appear in the consolidated balance sheet.
d.
Goodwill
Fair value of consideration given
$280,000
Fair value of Decibel’s net assets:
Cash and receivables
$ 40,000
Inventory
170,000
Buildings and equipment (net)
375,000
Accounts payable
(90,000)
Notes payable
(250,000)
Fair value of net identifiable
Assets
(245,000)
Goodwill to be reported
$ 35,000
Note: Goodwill on books of Decibel is not an identifiable asset and therefore
is not included in the computation of Decibel’s net identifiable assets at the
date of acquisition.
e.
Common Stock
$400,000
f.
Retained Earnings
$105,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4-27 Balance Sheet Consolidation [AICPA Adapted]
Equity Method Entries on Case Inc.’s Books:
Investment in Frey Inc.
2,260,000
Cash
2,260,000
Record the initial investment in Frey Inc.
Investment in Frey Inc.
580,000
Income from Frey Inc.
580,000
Record Case Inc.’s 100% share of Frey Inc.’s 20X4 income
Cash
160,000
Investment in Frey Inc.
160,000
Record Case Inc.’s 100% share of Frey Inc.’s 20X4 dividend
Book Value Calculations:
Total
Book
Value
=
Common
Stock
+
Retained
Earnings
+
Additional
Paid-In
Capital
Beginning book
value
2,010,000
1,000,000
820,000
190,000
+ Net Income
580,000
580,000
– Dividends
(160,000)
(160,000)
Ending book value
2,430,000
1,000,000
1,240,000
190,000
1/1/X4
Goodwill = 0
Identifiable
Excess = 250,000
$2,260,000
Initial
investment
in Frey Inc.
100%
Book value =
2,010,000
12/31/X4
Goodwill = 0
Identifiable
Excess = 250,000
$2,680,000
Net
investment in
Frey Inc.
100%
Book value =
2,430,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-43
P4-27 (continued)
Basic Consolidation Entry
Common Stock
1,000,000
Retained Earnings
820,000
Income from Frey Inc.
580,000
Additional Paid-In Capital
190,000
Dividends Declared
160,000
Investment in Frey Inc.
2,430,000
Excess Value (Differential) Calculations:
Total
=
Land
Beginning balance
250,000
250,000
Changes
0
0
Ending balance
250,000
250,000
Excess Value (Differential) Reclassification Entry:
Land
250,000
Investment in Frey Inc.
250,000
Investment in
Income from
Frey Inc.
Frey Inc.
Acquisition Price
2,260,000
100% Net Income
580,000
580,000
100% Net Income
160,000
100% Dividends
Ending Balance
2,680,000
580,000
Ending Balance
2,430,000
Basic
580,000
250,000
Excess Reclass.
0
0
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-44
P4-27 (continued)
Case Inc.
Frey Inc.
Consolidation Entries
DR
CR
Consolidated
Balance Sheet
Cash
825,000
330,000
1,155,000
Accounts and Other Receivables
2,140,000
835,000
2,975,000
Inventory
2,310,000
1,045,000
3,355,000
Land
650,000
300,000
250,000
1,200,000
Depreciable Assets (net)
4,575,000
1,980,000
6,555,000
Investment in Frey Inc.
2,680,000
2,430,000
0
250,000
Long-Term Investments & Other
Assets
865,000
385,000
1,250,000
Total Assets
14,045,000
4,875,000
250,000
2,680,000
16,490,000
Accounts Payable and Other Cur.
Liabilities
2,465,000
1,145,000
3,610,000
Long-Term Debt
1,900,000
1,300,000
3,200,000
Common Stock
3,200,000
1,000,000
1,000,000
3,200,000
Additional Paid-In Capital
2,100,000
190,000
190,000
2,100,000
Retained Earnings
4,380,000
1,240,000
820,000
4,380,000
580,000
160,000
Total Liabilities & Equity
14,045,000
4,875,000
2,590,000
160,000
16,490,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-45
P4-28 Consolidated Balance Sheet
a.
Basic Consolidation Entry
Common Stock
100,000
Retained Earnings
120,000
Investment in Lake Corp.
220,000
Excess Value (Differential) Reclassification Entry:
Buildings & Equipment
40,000
Accumulated Depreciation
8,000
Investment in Lake Corp.
32,000
Optional Accumulated Depreciation Consolidation Entry
Accumulated depreciation
25,000
Building & equipment
25,000
b.
Thompson
Co.
Lake
Corp.
Consolidation
Entries
DR
CR
Consolidated
Balance Sheet
Cash
30,000
20,000
50,000
Accounts Receivable
100,000
40,000
140,000
Land
60,000
50,000
110,000
Buildings & Equipment
500,000
350,000
40,000
25,000
865,000
Less: Accumulated Depreciation
(230,000)
(75,000)
25,000
8,000
(288,000)
Investment in Lake Corporation
252,000
220,000
0
32,000
Total Assets
712,000
385,000
65,000
285,000
877,000
Accounts Payable
80,000
10,000
90,000
Taxes Payable
40,000
70,000
110,000
Notes Payable
100,000
85,000
185,000
Common Stock
200,000
100,000
100,000
200,000
Retained Earnings
292,000
120,000
120,000
292,000
Total Liabilities & Equity
712,000
385,000
220,000
0
877,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4-29 Comprehensive Problem: Consolidation in Subsequent Period
a.
Equity Method Entries on Thompson Co.’s Books:
Investment in Lake Corp.
32,000
Income from Lake Corp.
32,000
Record Thompson Co.’s 100% share of Lake Corp.’s 20X4
income
Cash
12,000
Investment in Lake Corp.
12,000
Record Thompson Co.’s 100% share of Lake Corp.’s 20X4
dividend
Income from Lake Corp.
4,000
Investment in Lake Corp.
4,000
Record amortization of excess acquisition price
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Beginning book
value
220,000
100,000
120,000
+ Net Income
32,000
32,000
– Dividends
(12,000)
(12,000)
Ending book value
240,000
100,000
140,000
1/1/X4
Goodwill = 0
Identifiable
Excess = 32,000
$252,000
Net
investment
in Lake
Corp.
100%
Book value =
220,000
12/31/X4
Goodwill = 0
Identifiable
Excess = 28,000
$268,000
Net
investment in
Lake Corp.
100%
Book value =
240,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-47
P4–29 (continued)
Basic Consolidation Entry
Common Stock
100,000
Retained Earnings
120,000
Income from Lake Corp.
32,000
Dividends Declared
12,000
Investment in Lake Corp.
240,000
Excess Value (Differential) Calculations:
Total
=
Buildings &
Equipment
+
Acc.
Depr.
Beginning balance
32,000
40,000
(8,000)
Changes
(4,000)
(4,000)
Ending balance
28,000
40,000
(12,000)
Amortized Excess Value Reclassification Entry:
Depreciation Expense
4,000
Income from Lake Corp.
4,000
Excess Value (Differential) Reclassification Entry:
Buildings & Equipment
40,000
Accumulated Depreciation
12,000
Investment in Lake Corp.
28,000
Eliminate Intercompany Accounts:
Accounts Payable
2,500
Accounts Receivable
2,500
Investment in
Income from
Lake Corp.
Lake Corp.
Beginning
Balance
252,000
100% Net Income
32,000
32,000
100% Net Income
12,000
100% Dividends
4,000
Excess Val. Amort.
4,000
Ending Balance
268,000
28,000
Ending Balance
240,000
Basic
32,000
28,000
Excess Reclass.
4,000
0
0
Optional Accumulated Depreciation Consolidation Entry
Accumulated Depreciation
25,000
Building & Equipment
25,000
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
4-48
P4–29 (continued)
c.
Thompson
Co.
Lake
Corp.
Consolidation Entries
DR
CR
Consolidated
Income Statement
Service Revenue
610,000
240,000
850,000
Less: Cost of Services
(470,000)
(130,000)
(600,000)
Less: Depreciation Expense
(35,000)
(18,000)
4,000
(57,000)
Less: Other Expenses
(57,000)
(60,000)
(117,000)
Income from Lake Corp.
28,000
32,000
4,000
0
Net Income
76,000
32,000
36,000
4,000
76,000
Statement of Retained Earnings
Beginning Balance
292,000
120,000
120,000
292,000
Net Income
76,000
32,000
36,000
4,000
76,000
Less: Dividends Declared
(30,000)
(12,000)
12,000
(30,000)
Ending Balance
338,000
140,000
156,000
16,000
338,000
Balance Sheet
Cash
74,000
42,000
116,000
Accounts Receivable
130,000
53,000
2,500
180,500
Land
60,000
50,000
110,000
Buildings & Equipment
500,000
350,000
40,000
25,000
865,000
Less: Accumulated Depreciation
(265,000)
(93,000)
25,000
12,000
(345,000)
Investment in Lake Corp.
268,000
240,000
0
28,000
Total Assets
767,000
402,000
40,000
282,500
926,500
Accounts Payable
71,000
17,000
2,500
85,500
Taxes Payable
58,000
60,000
118,000
Notes Payable
100,000
85,000
185,000
Common Stock
200,000
100,000
100,000
200,000
Retained Earnings
338,000
140,000
156,000
16,000
338,000
Total Liabilities & Equity
767,000
402,000
258,500
16,000
926,500
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4-30 Acquisition at Other than Fair Value of Net Assets
a. Ownership acquired for $280,000:
Equity Method Entries on Mason Corp.’s Books:
Investment in Best Co.
280,000
Cash
280,000
Record the initial investment in Best Co.
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Book value at
acquisition
255,000
80,000
175,000
Basic Consolidation Entry
Common stock
80,000
Retained earnings
175,000
Investment in Best Co.
Excess Value (Differential) Calculations:
=
+
Inventories
+
Balances
Excess Value (Differential) Reclassification Entry:
Land
Goodwill
Chapter 04 – Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
P4-30 (continued)
Investment in
Best Co.
Acquisition Price
280,000
255,000
Basic
25,000
Excess Reclass.
0
b. Ownership acquired for $251,000:
Equity Method Entries on Mason Corp.’s Books:
Investment in Best Co.
268,000
Cash
Gain on Bargain Purchase
251,000
17,000
Record the initial investment in Best Co.
Book Value Calculations:
Total Book
Value
=
Common
Stock
+
Retained
Earnings
Book value at
acquisition
255,000
80,000
175,000
Common Stock
Retained Earnings
Investment in Best Co.
Excess Value (Differential) Calculations:
=
Balances
Excess Value (Differential) Reclassification Entry:
Land
Inventories
Investment in Best Co.
Investment in
Best Co.
Acquisition Price
268,000
255,000
Basic
13,000
Excess Reclass.