Chapter 08 – Intercompany Indebtedness
P8–28A (continued)
Excess Value (Differential) Calculations:
NCI 10%
+
Topp Co. 90%
=
Land
+
Goodwill
Beginning balance
8,000
72,000
30,000
50,000
Changes
(2,500)
(22,500)
(25,000)
Ending balance
5,500
49,500
30,000
25,000
Amortized Excess Value Reclassification Entry:
Goodwill Impairment Loss
25,000
Income from Bussman Corp.
22,500
NCI in NI of Bussman Corp.
2,500
Excess Value (Differential) Reclassification Entry:
Land
30,000
Goodwill
25,000
Investment in Bussman Corp.
49,500
NCI in NA of Bussman Corp.
5,500
Chapter 08 – Intercompany Indebtedness
a.
Goodwill as of January 1, 20X7:
Fair value of consideration given by Topp
$1,152,000
Fair value of noncontrolling interest at acquisition
128,000
Total
$1,280,000
Book value of net assets at acquisition
(1,200,000)
Differential at acquisition
$ 80,000
Increase in fair value of land
(30,000)
Goodwill at acquisition
$ 50,000
b.
Computation of balance in investment account, January 1, 20X7:
Bussman stockholders’ equity, January 1, 20X7:
Common stock
$ 500,000
Premium on common stock
280,000
Retained earnings
470,000
Stockholders’ equity, January 1, 20X7
$1,250,000
Topp’s ownership share
x 0.90
Book value of shares held by Topp
$1,125,000
Differential at January 1, 20X7 ($80,000 x 0.90)
72,000
Balance in Investment in Bussman Stock account,
January 1, 20X7
$1,197,000
Computation of balance in investment account, December 31, 20X7:
(not required)
Balance in Investment in Bussman Stock account,
January 1, 20X7
$1,197,000
Add: Income from subsidiary, 20X7
90,000
Less: Dividends received ($40,000 x 0.90)
(36,000)
Balance in Investment in Bussman Stock account,
December 31, 20X7
$1,251,000
c.
Gain on constructive retirement of Bussman’s bonds:
Original proceeds from issuance of Bussman bonds
$1,010,000
Premium amortized to January 2, 20X7:
($10,000 / 10) x 6
(6,000)
Book value of bonds at constructive retirement
$1,004,000
Price paid for Bussman bonds by Topp
(980,000)
Gain on constructive retirement of Bussman‘s bonds
$ 24,000
