P16-4. Equity method and fair value option
Requirement 1:
The determination of excess cost and its allocation is as follows:
2017 Journal entries:
January 1, 2017 – Initial acquisition
DR Investment in Delta Crating $250
$100 million)
To record additional depreciation related to equity investment in
Delta
DR Income from Delta $4
$40/10 = $4.)
To record receipt of dividend from Delta
DR Cash $9
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CR Investment in Delta Crating $9
2018 Journal entries:
To record equity in Delta’s net income
$80 million)
To record additional depreciation related to equity investment in Delta
DR Income from Delta $4
To record receipt of dividend from Delta
Requirement 2:
Requirement 3:
2017 Journal entries:
January 1, 2017 – Initial acquisition
Corp.)
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To record receipt of dividend from Delta
DR Cash $9
To record 2017 fair value adjustment
DR Investment in Delta Crating $50
2018 Journal entries:
To record receipt of dividend from Delta
DR Cash $6
To record 2018 fair value adjustment
DR Investment in Delta Crating $60
Requirement 4:
Equity Method FV Option
significantly in a particular year.
P16-5. Using acquisition method with goodwill
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Requirement 1:
DR Investment in Sigma $80,000
CR Cash
$80,000
Requirement 2:
Requirement 3:
Adjustment and elimination entries:
CR Investment in Sigma (80%) 35,200
To eliminate Sigma’s equity accounts against Delta’s Investment in Sigma
account and to set up the noncontrolling interest in the book value of Sigma’s
net assets.
(B)DR Inventory 9,600
DR Land 5,600
Goodwill account on the consolidated balance sheet attributable to the
controlling interest.
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(C)DR Inventory 2,400
DR Land 1,400
DR Plant and Equipment 3,200
the noncontrolling interest—under the acquisition method.
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Requirement 4: Consolidated Balance Sheet:
Delta Sigma
Eliminations Consolidated
Dr Cr Balance Sheet
Assets
Cash $ 11,000 $ 8,000 $ 19,000
Accounts receivable 19,000 15,000 4,800(B)
1,200(C) 28,000
5,400(C) 27,000
Total $ 235,000 $ 94,000 $ 305,000
Liabilities & Equity
Accounts payable 52,000 35,000 87,000
11,200(C)
Total $ 235,000 $ 94,000 $106,000 $106,000 $ 305,000
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P16-6. Consolidating at acquisition: Acquisition vs. purchase method
90% Imputed 100%
Purchase price of Sprite’s stock $36,000
$40,000*
Goodwill 5,400 (40% x $13,500)
$13,500
*Sprite’s imputed total business fair value at acquisition date is
$40,000 ($36,000/0.9).
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NOTE: Under the purchase method, noncontrolling interest of
P16-7. Elimination entries and consolidated balance sheet
Case 1:
Requirement 1:
$180,000
Requirement 2:
DR Common Stock & APIC, Salad $100,000
Requirement 3:
Assets:
Cash $420,000
Accts. Receiv. 70,000
Liab. & Equity:
Accounts Payable $120,000
Total $980 ,000
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Note: All balance sheet amounts are equal to the sum of the
equity accounts are eliminated in consolidation.
Case 2:
Requirement 1:
DR Investment in Salad $210,000
Requirement 2:
DR Common Stock & APIC, Salad $100,000
DR Land $10,000
Requirement 3:
Assets:
Cash $390,000
A/R 70,000
Total $980 ,000
Liab. & Equity
Accounts Payable $120,000
Total $980 ,000
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Note: All balance sheet amounts are equal to the sum of the
because Salad’s equity accounts are eliminated in consolidation.
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