(30 Minutes) (Consolidation entries for two years. Parent uses equity method.)
Fair Value Allocation and Annual Amortization:
Acquisition fair value (consideration transferred) …….. $490,000
Book value (assets minus
liabilities or total stockholders’
equity) …………………………………………………………………. (400,000)
Excess fair value over book value ……………………………. $ 90,000
Excess fair value assigned to specific
accounts based on individual fair values Annual excess
Life amortizations
Land ………………………………….. $10,000 — —
Buildings …………………………… 40,000 4 yrs. $10,000
Equipment …………………………. (20,000) 5 yrs. (4,000)
Total assigned to specific
accounts ………………………. 30,000
Goodwill …………………………….. 60,000 Indefinite -0-
Total …………………………………… $90,000 $6,000
Consolidation Entries as of December 31, 2012
Entry S
Common StockAbernethy………………………………… 250,000
Additional Paid-in CapitalAbernethy……………….. 50,000
Retained Earnings1/1/12 ………………………………… 100,000
Investment in Abernethy ……………………………….. 400,000
(To eliminate stockholders’ equity accounts of subsidiary)
Entry A
Land ……………………………………………………………………. 10,000
Buildings …………………………………………………………….. 40,000
Goodwill ……………………………………………………………… 60,000
Equipment …………………………………………………….. 20,000
Investment in Abernethy ……………………………….. 90,000
(To recognize allocations attributed to fair value of specific accounts at acquisition date with residual fair value recognized as goodwill).
Entry I
Equity in Earnings of Subsidiary…………………………. 74,000
Investment in Abernethy ……………………………….. 74,000
(To eliminate $80,000 income accrual for 2012 less $6,000 amortization
recorded by parent using equity method)
)
Entry D
Investment in Abernethy …………………………………….. 10,000
Dividend Paid ………………………………………………… 10,000
(To eliminate intercompany dividend transfers)
Entry E
Depreciation Expense…………………………………………. 6,000
Equipment…………………………………………………………… 4,000
Buildings………………………………………………………… 10,000
(To record current year amortization expense)
Consolidation Entries as of December 31, 2013
Entry S
Common StockAbernethy ……………………………….. 250,000
Additional Paid-in CapitalAbernethy ………………. 50,000
Retained Earnings1/1/13…………………………………. 170,000
Investment in Abernethy ……………………………….. 470,000
(To eliminate beginning stockholders’ equity of subsidiarythe Retained Earnings account has been adjusted for 2012 income and dividends. Entry *C is not needed because equity method was applied.)
Entry A
Land ……………………………………………………………………. 10,000
Buildings …………………………………………………………….. 30,000
Goodwill ……………………………………………………………… 60,000
Equipment …………………………………………………….. 16,000
Investment in Abernethy ……………………………….. 84,000
(To recognize allocations relating to investmentbalances shown here are as of beginning of current year [original allocation less excess amortizations for the prior period])
Entry I
Equity in Earnings of Subsidiary…………………………. 104,000
Investment in Abernethy ……………………………….. 104,000
(To eliminate $110,000 income accrual less $6,000 amortization recorded by parent during 2013 using equity method)
Entry D
Investment in Abernethy …………………………………….. 30,000
Dividend Paid ………………………………………………… 30,000
(To eliminate intercompany dividend transfers)
Entry E
Same as Entry E for 2012
21. (35 Minutes) (Consolidation entries for two years. Parent uses initial value method.)
Purchase price allocation and annual excess fair value amortizations:
Acquisition date value (consideration paid) ……….. $500,000
Book value ………………………………………………………….. (400,000)
Excess price paid over book value ……………………… $100,000
Excess price paid assigned to specific Annual excess
accounts based on fair values Life amortizations
Equipment $ 20,000 5 yrs. $4,000
Long?term liabilities 30,000 4 yrs. 7,500
Goodwill 50,000 Indefinite -0-
Total $100,000 $11,500
Consolidation entries as of December 31, 2012
Entry S
Common StockAbernethy ……………………………… 250,000
Additional Paid-in CapitalAbernethy………………. 50,000
Retained Earnings1/1/12 ……………………………….. 100,000
Investment in Abernethy……………………………….. 400,000
(To eliminate stockholders’ equity accounts of subsidiary)
Entry A
Equipment …………………………………………………………. 20,000
Long-term Liabilities ………………………………………….. 30,000
Goodwill …………………………………………………………….. 50,000
Investment in Abernethy ………………………………. 100,000
(To recognize allocations determined above in connection with acquisition-date fair values)
Entry I
Dividend Income ……………………………………………….. 10,000
Dividends Paid …………………………………………….. 10,000
(To eliminate intercompany dividend payments recorded by parent as income)
Entry E
Depreciation Expense ……………………………………….. 4,000
Interest Expense………………………………………………… 7,500
Equipment…………………………………………………….. 4,000
Long-term Liabilities……………………………………… 7,500
(To record 2012 amortization expense)
Entry *C
Investment in Abernethy ……………………………………. 58,500
Retained Earnings1/1/13 (Chapman) ………. 58,500
(To convert parent company figures to equity method by recognizing subsidiary’s increase in book value for prior year [$80,000 net income less $10,000 dividend payment] and excess amortizations for that period [$11,500])
Entry S
Common StockAbernethy ……………………………… 250,000
Additional Paid-in CapitalAbernethy………………. 50,000
Retained Earnings1/1/13 ……………………………….. 170,000
Investment in Abernethy ………………………………. 470,000
(To eliminate beginning of year stockholders’ equity accounts of subsidiary. The retained earnings balance has been adjusted for 2012 income and dividends)
Entry A
Equipment …………………………………………………………. 16,000
Long-term Liabilities ………………………………………….. 22,500
Goodwill …………………………………………………………….. 50,000
Investment in Abernethy ………………………………. 88,500
(To recognize allocations relating to investmentbalances shown here are as of the beginning of the current year [original allocation less excess amortizations for the prior period])
Entry I
Dividend income ……………………………………………….. 30,000
Dividends Paid ……………………………………….. 30,000
(To eliminate intercompany dividend payments recorded by parent as income)
Entry E
Same as Entry E for 2012
22. (20 Minutes)(Consolidation entries for two years. Parent uses partial equity method.)
Fair value allocation and annual excess amortizations:
Abernethy fair value (consideration paid) ………………… $520,000
Book value ……………………………………………………………….. (400,000)
Excess fair value over book value (all goodwill) ………. $120,000
Life assigned to goodwill ………………………………………….. Indefinite
Annual excess amortizations …………………………………… -0-
Consolidation Entries as of December 31, 2012
Entry S
Common StockAbernethy ……………………………….. 250,000
Additional Paid-in CapitalAbernethy ………………. 50,000
Retained EarningsAbernethy1/1/12 ……………. 100,000
Investment in Abernethy ……………………………….. 400,000
(To eliminate stockholders’ equity accounts of subsidiary)
Entry A
Goodwill ……………………………………………………………… 120,000
Investment in Abernethy ……………………………….. 120,000
(To recognize goodwill portion of the original acquisition fair value)
Entry I
Equity in Earnings of Subsidiary…………………………. 80,000
Investment in Abernethy ……………………………….. 80,000
(To eliminate intercompany income accrual for the current year based on the parent’s usage of the partial equity method)
Entry D
Investment in Abernethy …………………………………….. 10,000
Dividend Paid ………………………………………………… 10,000
(To eliminate intercompany dividend transfers)
Entry ENot needed. Goodwill is not amortized.
Consolidation Entries as of December 31, 2013
Entry *CNot needed. Goodwill is not amortized.
Entry S
Common StockAbernethy………………………………… 250,000
Additional Paid-in CapitalAbernethy……………….. 50,000
Retained Earnings Abernethy1/1/13 …………… 170,000
Investment in Abernethy ……………………………….. 470,000
(To eliminate beginning of year stockholders’ equity accounts of subsidiarythe retained earnings balance has been adjusted for 2012 income and dividends.)
Entry A
Goodwill ……………………………………………………………… 120,000
Investment in Abernethy ……………………………….. 120,000
(To recognize original goodwill balance.)
Entry I
Equity in Earnings of Subsidiary…………………………. 110,000
Investment in Abernethy ……………………………….. 110,000
(To eliminate Intercompany Income accrual for the current year.)
Entry D
Investment in Abernethy …………………………………….. 30,000
Dividends Paid ………………………………………………. 30,000
(To eliminate Intercompany dividend transfers.)
Equity Enot needed
Q 27: Sample Solution
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $36,000. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $50,000, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an un- recorded process trade secret with an estimated future life of 4 years. Calvins total acquisition- date fair value is $60,000.
LO2, LO4, LO5
At the end of the year, Calvin reports the following in its financial statements:
Revenues Expenses $50,000 20,000
Machine Other assets $ 9,000 26,000
Common stock Retained earnings $10,000 25,000
Net income $30,000 Total assets $35,000
Total equity $35,000
Dividends paid $ 5,000
Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, total noncontrolling interest, Calvins machine (net of accumulated depreciation), and the process trade secret
Chapter 4 (15 minutes) Consolidated figures with noncontrolling interest
Fair value of company (given) $60,000
Book value (10,000)
Fair value in excess of book value 50,000
to machine ($50,000 $10,000) 40,000÷ 10 = $4,000 per year
to process trade secret $10,000 ÷ 4 = 2,500 per year
$6,500 per year
Consolidated figures:
· Noncontrolling interest in subsidiary income
= 40%´ ($50,000 revenues less $26,500 expenses) = $9,400
· End-of-year noncontrolling interest:
Beginning balance (40%´ $60,000) $24,000
Income allocation 9,400
Dividend reduction (40%´ $5,000) (2,000)
End-of-year noncontrolling interest $31,400
· Machine (net) = $45,000 ($9,000 book value plus $40,000 excess allocation less $4,000 excess depreciation for one year).
· Process trade secret (net) = $10,000 $2,500 = $7,500