Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5-10 Differential Assigned to Amortizable Asset
a.
Lancaster Company’s common stock, January 1, 20X1
$120,000
Lancaster Company’s retained earnings, January 1, 20X1
380,000
Book value of Lancaster’s net assets
$500,000
Proportion of stock acquired
x .90
Book value of Lancaster’s shares purchased
by Major Corporation
$450,000
Excess of acquisition price over book value
36,000
Fair value of consideration given
$486,000
Add: Share of Lancaster’s net income ($60,000 x .90)
54,000
Less: Amortization of patents ($40,000 / 5) x .90
(7,200)
Dividends paid by Lancaster ($20,000 x .90)
(18,000)
Balance in investment account, December 31, 20X1
$514,800
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5–10 (continued)
1/1/X1
Goodwill = 0
Identifiable
Excess = 36,000
$486,000
Initial
investment in
Lancaster
Co.
90%
Book value =
450,000
12/31/X1
Goodwill = 0
Identifiable
Excess = 28,800
$514,800
Net
investment in
Lancaster
Co.
90%
Book value =
486,000
Basic Consolidation Entry
Common Stock
120,000
Retained Earnings
380,000
Income from Lancaster Co.
54,000
NCI in NI of Lancaster Co.
6,000
Dividends Declared
20,000
Investment in Lancaster Co.
486,000
NCI in NA of Lancaster Co.
54,000
Excess Value (Differential) Calculations:
NCI
10%
+
Major Corp.
90%
=
Patents
Beginning
balance
4,000
36,000
40,000
Changes
(800)
(7,200)
(8,000)
Ending balance
3,200
28,800
32,000
Amortized Excess Value Reclassification Entry:
Amortization Expense
8,000
Income from Lancaster Co.
7,200
NCI in NI of Lancaster Co.
800
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-23
E5–10 (continued)
Excess Value (Differential) Reclassification Entry:
Patents
32,000
Investment in Lancaster Co.
28,800
NCI in NA of Lancaster Co.
3,200
Investment in
Income from
Lancaster Co.
Lancaster Co.
Acquisition
Price
486,000
90% Net Income
54,000
54,000
90% Net Income
18,000
90% Dividends
7,200
Excess Val. Amort.
7,200
Ending Balance
514,800
46,800
Ending Balance
486,000
Basic
54,000
28,800
Excess Reclass.
7,200
Amort. Reclass
0
0
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5-11 Consolidation after One Year of Ownership
a.
Equity Method Entries on Pioneer Corp.’s Books:
Investment in Lowe Corp.
Cash
190,000
Record the initial investment in Lowe Corp.
Book Value Calculations:
NCI
20%
+
Pioneer Corp.
80%
=
Common
Stock
+
Retained
Earnings
Book value at
acquisition
40,000
160,000
120,000
80,000
Basic Consolidation Entry
120,000
80,000
Investment in Lowe Corp.
NCI in NA of Lowe Corp.
Excess Value (Differential) Calculations:
+
=
Buildings
+
Beginning balances
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
5-25
E5–11 (continued)
Excess Value (Differential) Reclassification Entry:
Buildings
32,000
Goodwill
5,500
Investment in Lowe Corp.
30,000
NCI in NA of Lowe Corp.
7,500
Investment in
Lowe Corp.
Acquisition Price
190,000
160,000
Basic
30,000
Excess Reclass.
0
Equity Method Entries on Pioneer Corp.’s Books:
Investment in Lowe Corp.
Income from Lowe Corp.
32,000
Record Pioneer Corp.’s 80% share of Lowe Corp.’s 20X2 income
Income from Lowe Corp.
Investment in Lowe Corp.
3,200
Record amortization of excess acquisition price
Book Value Calculations:
NCI
20%
+
Pioneer
Corp.
80%
=
Common
Stock
+
Retained
Earnings
Beginning book
value
40,000
160,000
120,000
80,000
+ Net Income
8,000
32,000
40,000
– Dividends
0
0
0
Ending book value
48,000
192,000
120,000
120,000
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5–11 (continued)
1/1/X2
Goodwill = 4,400
Identifiable
Excess = 25,600
$190,000
Initial
investment in
Lowe Corp.
80%
Book value =
160,000
12/31/X2
Goodwill = 4,400
Identifiable
Excess = 22,400
$218,800
Net
investment in
Lowe Corp.
80%
Book value =
192,000
Basic Consolidation Entry
Common Stock
120,000
Retained Earnings
80,000
Income from Lowe Corp.
32,000
NCI in NI of Lowe Corp.
8,000
Investment in Lowe Corp.
192,000
NCI in NA of Lowe Corp.
48,000
Excess Value (Differential) Calculations:
NCI
20%
+
Pioneer
Corp. 80%
=
Buildings
+
Acc. Depr.
+
Goodwill
Beginning balance
7,500
30,000
32,000
0
5,500
Changes
(800)
(3,200)
(4,000)
0
Ending balance
6,700
26,800
32,000
(4,000)
5,500
Amortized Excess Value Reclassification Entry:
Depreciation Expense
4,000
Income from Lowe Corp.
3,200
NCI in NI of Lowe Corp.
800
Excess value (Differential) Reclassification Entry:
Buildings
32,000
Goodwill
5,500
Accumulated Depreciation
4,000
Investment in Lowe Corp.
26,800
NCI in NA of Lowe Corp.
6,700
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5-11 (continued)
Investment in
Income from
Lowe Corp.
Lowe Corp.
Acquisition Price
190,000
80% Net Income
32,000
32,000
80% Net Income
3,200
Excess Val. Amort.
3,200
Ending Balance
218,800
28,800
Ending Balance
192,000
Basic
32,000
26,800
Excess Reclass.
3,200
Amort. Reclass
0
0
E5-12 Consolidation Following Three Years of Ownership
a.
Computation of increase in value of patents:
Fair value of consideration given by Knox
$277,500
Fair value of noncontrolling interest
185,000
Total fair value
$462,500
Book value of Conway stock
(400,000)
Excess of fair value over book value
$ 62,500
Increase in value of land ($30,000 – $22,500)
(7,500)
Increase in value of equipment ($360,000 – $320,000)
(40,000)
Increase In value of patents
$ 15,000
b.
Equity Method Entries on Knox Corp.’s Books:
Investment in Conway Corp.
Cash
277,500
Record the initial investment in Conway Corp.
Book Value Calculations:
acquisition
250,000
150,000
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
1/1/X7
Goodwill = 0
Identifiable
Excess = 37,500
$277,500
Net
investment in
Conway
Corp.
60%
Book value =
240,000
+
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5-12 (continued)
c. Computation of investment account balance at December 31, 20X8:
Fair value of consideration given
$277,500
Undistributed income since acquisition
($100,000 – $60,000) x .60
24,000
Amortization of differential assigned to:
Equipment ($40,000 / 8) x .60 x 2 years
(6,000)
Patents ($15,000 / 10) x .60 x 2 years
(1,800)
Account balance at December 31, 20X8
$293,700
Chapter 05 – Consolidation of Less-Than-Wholly Owned Subsidiaries Acquired at More than Book Value
E5-12 (continued)
1/1/X7
Goodwill = 0
Identifiable
Excess = 29,700
$293,700
Initial
investment in
Conway
Corp.
60%
Book value =
264,000
12/31/X7
Goodwill = 0
Identifiable
Excess = 25,800
$301,800
Net
investment in
Conway
Corp.
60%
Book value =
276,000
+