Student Name:
Class:
1,183,000$
1,105,000
204,000
1,309,000
(126,000)$
Correct!
(233,000)$
34,000
(199,000)$
Correct!
1,309,000$
199,000
(40,000)
1,468,000$
Correct!
Explanatory comments:
Brooks Chandler Debit Credit Consolidated
–
(640,000) (587,000) (1,227,000) Correct!
255,000 203,000 458,000 Correct!
(126,000) – (126,000) Correct!
150,000 151,000 [E] 34,000 335,000 Correct!
(199,000) – [ I ] 199,000 – Correct!
(560,000) (233,000) (560,000) Correct!
(1,835,000) (805,000) [S] 805,000 (1,835,000) Correct!
(560,000) (233,000) (560,000) Correct!
100,000 40,000 [D] 40,000 100,000 Correct!
(2,295,000) (998,000) (2,295,000) Correct!
343,000 432,000 775,000 Correct!
1,468,000 – [D] 40,000 [ I ] 199,000
[S] 1,105,000
[A] 204,000 – Correct!
134,000 221,000 355,000 Correct!
395,000 410,000 [A] 204,000 [E] 34,000 975,000 Correct!
693,000 341,000 1,034,000 Correct!
3,033,000 1,404,000 3,139,000 Correct!
(203,000) (106,000) (309,000) Correct!
(535,000) (300,000) [S] 300,000 (535,000) Correct!
(2,295,000) (998,000) (2,295,000) Correct!
(3,033,000) (1,404,000) 1,582,000 1,582,000 (3,139,000) Correct!
Correct! Correct!
Parentheses indicate a credit balance.
Instructor
McGraw-Hill
Problem 03-33
Income Statement
Revenues
Cost of goods sold
Gain on bargain purchase
Patented technology
Total liabilities and equity
Balance Sheet
Retained earnings, 1/1
Net income
Trademarks
Retained earnings, 12/31
Investment in Chandler
Dividends declared
Current assets
Fair value of net assets at acquisition-date
Equity earnings from Chandler
Equity earnings in Chandler
Net income
Statement of Retained Earnings
Retained earnings, 12/31
Depreciation and amortization
Liabilities
Common stock
Equipment
Total assets
Gain on bargain purchase
Chandler net income
Technology amortization
Equity earnings in Chandler
Part a. Acquisition-date fair value allocation and annual excess amortization
Acquisition fair value of net assets
Technology undervaluation
Chandler book value
Consideration transferred
BROOKS AND CONSOLIDATED SUBSIDIARY
Consolidation Worksheet
For Year Ending December 31, 2018
Adjustments & Eliminations
Dividends declared
Investment in Chandler 12/31/18
Because a bargain purchase occurred, Chandler’s net asset fair value replaces
the fair value of the consideration transferred as the initial value assigned to the
subsidiary on the books of the parent, Brooks.
Part b. Consolidated Worksheet
Gain on bargain purchase
Retained earnings, 12/31
Total assets
Retained earnings, 1/1
Net income
Dividends declared
Equipment
Chandler book value at acquisition date
Total liabilities and equity
BROOKS CORPORATION
Estimated remaining life in years
December 31, 2018
Financial Statements
Income Statement
Investment in Chandler
Trademarks
Patented technology
Statement of Retained Earnings
Balance Sheet
Liabilities
Common stock
Patented technology account undervalued
Given Data P03-33:
Retained earnings, 12/31
Current assets
Revenues
Cost of goods sold
Depreciation and amortization
Equity earnings from Chandler
Net income
Chandler, Inc. outstanding voting stock purchased by Brooks
Fair value consideration paid to Chandler
Student Name:
Class:
Debit Credit
500,000 Correct!
35,000 Correct!
465,000 Correct!
5,000 Correct!
5,000 Correct!
10,000 Correct!
10,000 Correct!
50,000 Correct!
50,000 Correct!
200,000 Correct!
180,000 Correct!
380,000 Correct!
90,000 Correct!
60,000 Correct!
35,000 Correct!
35,000 Correct!
10,000 Correct!
10,000 Correct!
Equity earnings of Wolfpack
Investment in Wolfpack
Investment in Wolfpack
Loss from increase in contingent performance obligation
12/31/2018
BRANSON
b.
a.
Investment in Wolfpack, Inc.
Acquisition Method:
Contingent performance obligation
Contingent performance obligation
12/31/2018
Cash
Retained earnings – Wolfpack
Common stock – Wolfpack
Equity Method:
c.
Investment in Wolfpack
Royalty agreements
Goodwill
Royalty agreements
McGraw-Hill
Instructor
Account
General Journal
Problem 03-34
Cash
Contingent performance obligation
Contingent performance obligation
Loss from increase in contingent performance obligation
12/31/2017
Amortization expense
Investment in Wolfpack
Dividends declared
Student Name:
Class:
McGraw-Hill
Instructor
Problem 03-34
30,000 Correct!
30,000 Correct!
200,000 Correct!
180,000 Correct!
380,000 Correct!
90,000 Correct!
60,000 Correct!
150,000 Correct!
35,000 Correct!
35,000 Correct!
10,000 Correct!
10,000 Correct!
Investment in Wolfpack
Dividends declared
Dividend income
Goodwill
Royalty agreements
Retained earnings – Wolfpack
Common stock – Wolfpack
Investment in Wolfpack
Investment in Wolfpack
Initial Value Method:
d.
Royalty agreements
Amortization expense
Retained earnings – Branson
465,000$
340,000$
200,000$
140,000$
100,000$
10
50,000$
35,000$
40,000$
Net Dividends
Income Declared
2017 65,000$ 25,000$
2018 75,000 35,000
Given Data P03-34:
Book value of Wolfpack’s retained earnings
Book value of Wolfpack’s common stock
Wolfpack’s book value at date of acquisition
of Wolfpack, Inc.
Branson paid cash for all outstanding common stock
Remaining life of Wolfpack’s royalty agreements
Wolfpack’s balances during subsequent years:
income exceeds $120,000 over first two years.
Fair value of Wolfpack’s unrecorded royalty agreements
Increased present value of contingency at 12/31/17
consideration
Probability adjusted present value of contingent
Additional cash paid to previous owners of Wolfpack if
Student Name:
Class:
206,000$
(140,000)
66,000$ Correct!
Annual
Life Excess
(years)
Amortizations
54,400$ 8 6,800$
(10,000) 20 (500)
21,600 indefinite –
66,000$ 6,300$
Correct! Correct!
206,000$
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
257,100$ Correct!
Book value of Jasmine
Jasmine’s acquisition-date fair value
Investment in Jasmine Company 12/31/18
2018 Excess amortizations
Problem 03-36
McGraw-Hill
Instructor
a. Investment in Jasmine Company
Schedule 1 – Acquisition-Date Fair Value Allocation and Amortization
Investment in Jasmine Company – 12/31/18
Total
Goodwill
2018 Increase in book value of subsidiary
2017 Excess amortizations
2017 Increase in book value of subsidiary
2016 Excess amortizations
2016 Increase in book value of subsidiary
Jasmine’s acquisition-date fair value
Buildings (overvalued)
Equipment
based on individual fair values:
Excess fair value assigned to specific accounts
Fair value in excess of book value
Student Name:
Class:
Problem 03-36
McGraw-Hill
Instructor
30,000$
(6,300)
23,700$ Correct!
414,000$
(272,000)
(6,300)
135,700$ Correct!
370,000$
54,400
(20,400)
404,000$ Correct!
288,000$
(10,000)
1,500
279,500$ Correct!
21,600$ Correct!
290,000$ Correct!
g. Consolidated common stock
410,000$ Correct!
Consolidated revenues
c. Consolidated net income
Equity in subsidiary earnings
Excess amortizations
Income accrual
b. Equity in subsidiary earnings
Consolidated buildings
Consolidated expenses
Excess depreciation
Acquisition-date fair value allocation
Book values added together
Consolidated equipment
Excess depreciation
Acquisition-date fair value allocation
e. Consolidated buildings
d. Consolidated equipment
Book values added together
Consolidated net income
Excess amortization expenses
h. Consolidated retained earnings
f. Allocation of excess fair value to goodwill
206,000$
140,000
54,400
8
10,000$
20
Net Dividends
Income Declared
2016 50,000$ 10,000$
2017 60,000 40,000
2018 30,000 20,000
Tyler Jasmine
Company Company
(310,000)$ (104,000)$
198,000 74,000
320,000 50,000
220,000 68,000
(290,000) (50,000)
(410,000) (160,000)
Jasmine’s equipment was undervalued
Given Data P03-36:
Jasmine’s book value at date of acquisition
Tyler paid cash for all outstanding stock of Jasmine
Retained earnings, 12/31/18
Common stock
Buildings (net)
Equipment (net)
Expenses
Revenues-operating
Jasmine’s balances during subsequent years:
Remaining life of Jasmine’s building
Jasmine’s building was overvalued
Remaining life of Jasmine’s equipment
Financial records as of December 31, 2018:
Student Name:
Class:
1,980,000$
150,000
(44,000)
(7,000)
210,000
(25,000)
(7,000)
2,257,000$ Correct!
12/31/18 12/31/18
Accounts Procise GaugeRite Debit Credit Consolidated
(3,500,000) (1,000,000) (4,500,000) Correct!
1,600,000 630,000 2,230,000 Correct!
350,000 130,000 [E] 7,000 487,000 Correct!
190,000 30,000 220,000 Correct!
(203,000)
[ I ]
203,000 – Correct!
(1,563,000) (210,000) (1,563,000) Correct!
(3,000,000) (800,000) [S] 800,000 (3,000,000) Correct!
(1,563,000) (210,000) (1,563,000) Correct!
200,000 25,000 [D] 25,000 200,000 Correct!
(4,363,000) (985,000) (4,363,000) Correct!
228,000 50,000 278,000 Correct!
840,000 155,000 995,000 Correct!
900,000 580,000 1,480,000 Correct!
2,257,000 [D] 25,000 [S] 1,800,000 – Correct!
[A] 279,000
[ I ] 203,000
3,500,000 700,000 4,200,000 Correct!
4,785,000 1,700,000 [A] 49,000 [E] 7,000 6,527,000 Correct!
290,000 [A] 230,000 520,000 Correct!
12,800,000 3,185,000 14,000,000 Correct!
Common stock – Procise
Long-term debt
Accounts payable
Parentheses indicate a credit balance.
Total liabilities and equity
Retained earnings, 12/31/18
McGraw-Hill
Instructor
Investment balance 12/31/18
Amortization 2018
Dividends declared in 2018
Income 2018
For Year Ending December 31, 2018
Consolidated Worksheet
Procise and Subsidiary GaugeRite
Problem 03-37
Equipment (net)
Amortizations 2017
In-process R&D write-off in 2017
Increase in GaugeRite‘s RE to 1/1/18
Consideration transferred 1/1/17
Total assets
Goodwill
Consolidated Entries
Dividends declared
Net income
Retained earnings 1/1/18
Net income
Subsidiary income
Deprecation expense
Cost of goods sold
Sales
Other operating expenses
a. Procise 1/1/17 Investment in GaugeRite account balance
Part c. Consolidated Worksheet
Cash
Retained earnings 12/31/18
Land
Investment in GaugeRite
Inventory
Accounts receivable
1,765,000$
14,000$
100,000
700,000
1,886,000
2,700,000$
120,000$
930,000
1,000,000
650,000
2,700,000$
1,980,000$
1,650,000
330,000
44,000$
56,000 100,000
230,000$
44,000$
Procise GaugeRite
(3,500,000)$ (1,000,000)$
1,600,000 630,000
350,000 130,000
190,000 30,000
(203,000)
(1,563,000)$ (210,000)$
(3,000,000)$ (800,000)$
(4,363,000)$ (985,000)$
Equipment (net)
Land
Investment in GaugeRite
Inventory
Long-term debt
Accounts receivable
Cash
Retained earnings, 12/31/18
Dividends declared
Net income
Goodwill
Other operating expenses
Allocation at acquisition date:
Retained Earnings
Subsidiary income
Deprecation expense
Cost of goods sold
Future benefits expected from GaugeRite ‘s in-process R & D
To goodwill (indefinite life)
To equipment (8 year remaining life)
Book value acquired
Fair value of consideration transferred
December 31, 2018
Trial Balances
To in-process research and development
Excess fair value over book value
Given Data P03-37:
of GaugeRite
Procise paid cash for all outstanding voting stock
Equipment (net)
Long-term Debt
Accounts Payable
GaugeRite’s balance sheet at 1/1/17:
Land
Accounts Receivable
Cash
Common Stock
Sales
Retained earnings, 1/1/18
Net income
(4,363,000) (985,000)
(12,800,000)$ (3,185,000)$
Total liabilities and equities
Retained earnings, 12/31/18
Student Name:
Class:
120,070,000$
110,000,000
10,070,000$
Correct!
110,000,000$
109,000$
897,000
60,000,000
20,000,000
19,000,000
(650,000)
(6,250,000)
93,106,000
16,894,000
50,000,000
33,106,000$
Correct!
33,106,000
33,106,000
Correct!
30,000,000$
22,200,000
7,800,000
(33,106,000)
(25,306,000)$
Correct!
16,894,000$
Correct!
14,364,000$
Correct!
Investment in Lydia Co.
Goodwill impairment loss
c. Consolidated net income for the year:
e.
d.
12/31 Consolidated broadcast licenses
12/31 Consolidated goodwill:
Cash
Consolidated net loss
Goodwill impairment loss-Lydia
Income before impairment loss
Combined expenses (including excess amortization)
Combined revenues
Long-term debt
Current liabilities
Equipment
Broadcast licenses
Movie library
Result:
12/31 Fair value
12/31 Carrying value (equity method balance)
Problem 03-38
McGraw-Hill
Instructor
a. Relevant initial test to determine whether goodwill could be impaired
Journal entry by Prine:
Because fair value is less that carrying value, Prine is required to further test whether
goodwill is impaired.
Fair value of assets and liabilities
12/31 Fair value for Lydia
Receivables (net)
Total net fair value
Implied fair value for goodwill
Carrying value for goodwill
Impairment loss
b. Calculation of Lydia reporting unit impairment loss for the year
Adjusting Entries Consolidated
Accounts Prine, Inc. Lydia Co. Debit Credit Totals
(18,000,000) (12,000,000) (30,000,000) Correct!
10,350,000 11,800,000 [E] 50,000 22,200,000 Correct!
(150,000) –
[ I ]
150,000 – Correct!
33,106,000 – 33,106,000 Correct!
25,306,000 (200,000) 25,306,000 Correct!
(52,000,000) (2,000,000) [S] 2,000,000 (52,000,000) Correct!
300,000 80,000 [D] 80,000 300,000 Correct!
25,306,000 (200,000) 25,306,000 Correct!
(26,394,000) (2,120,000) (26,394,000) Correct!
260,000 109,000 369,000 Correct!
210,000 897,000 1,107,000 Correct!
86,964,000 – [D] 80,000 [S] 69,500,000 – Correct!
[A] 17,394,000
[ I ] 150,000
350,000 14,014,000 14,364,000 Correct!
365,000 45,000,000 45,365,000 Correct!
136,000,000 17,500,000 [A] 500,000 [E] 50,000 153,950,000 Correct!
– – [A] 16,894,000 16,894,000 Correct!
224,149,000 77,520,000 232,049,000 Correct!
(755,000) (650,000) (1,405,000) Correct!
(22,000,000) (7,250,000) (29,250,000) Correct!
(175,000,000) (67,500,000) [S] 67,500,000 (175,000,000) Correct!
(26,394,000) (2,120,000) (26,394,000) Correct!
(224,149,000) (77,520,000)
87,174,000 87,174,000 (232,049,000) Correct!
Correct! Correct!
December 31
Consolidated Worksheet
PRINE and LYDIA
Total assets
Cash
Goodwill
Investment in Lydia Co.
Total liabilities and equity
Retained earnings, 12/31
Common stock
Long-term debt
Current liabilities
Retained earnings, 12/31
Net loss (income)
Equipment (net)
Movie library
Broadcast licenses
f. Consolidated Worksheet
Expenses
Revenues
Parentheses indicate a credit balance.
Dividends declared
Retained earnings, 1/1
Net loss (income)
Impairment loss
Equity in Lydia earnings
Receivables (net)
100%
120,000,000$
500,000$
10
50,000,000$
110,000,000$
1/1 12/31
215,000$ 109,000$
525,000 897,000
40,000,000 60,000,000
15,000,000 20,000,000
20,750,000 19,000,000
(490,000) (650,000)
(6,000,000) (6,250,000)
Prine, Inc Lydia Co.
(18,000,000)$ (12,000,000)$
10,350,000 11,800,000
(150,000)
300,000 80,000
(52,000,000) (2,000,000)
260,000 109,000
210,000 897,000
120,070,000
350,000 14,014,000
365,000 45,000,000
136,000,000 17,500,000
(755,000) (650,000)
(22,000,000) (7,250,000)
(175,000,000) (67,500,000)
Broadcast licenses
Investment in Lydia
Receivables (net)
Cash
Fair Values
Retained earnings 1/1
Dividends declared
Equity in Lydia earnings
Operating expenses
Revenues
Balances at December 31:
Long-term debt
Current liabilities
Common stock
Long-term debt
Current liabilities
Equipment (net)
Movie library
Equipment (10-year remaining life)
Broadcast licenses (indefinite life)
Movie library (25-year remaining life)
Receivables (net)
Cash
Given Data P03-38:
Fair values of reporting unit through first year:
Lydia common stock purchased by Prine
Lydia’s equipment undervalued by:
Fair value paid in cash and stock
Lydia’s goodwill at acquisition
Lydia’s equipment life remaining in years
Lydia reporting unit reduced fair value at 12/31