Exercise 5-3 Part A Investment in Saddler Corp. Cash
525,000 525,000
Part B Computation and Allocation of Difference Schedule Parent Share Purchase price and implied value $525,000 Less: Book value of equity acquired 480,000 Difference between implied and book value 45,000 Inventory (16,000) Marketable Securities (20,000) Plant and Equipment (24,000) Balance (excess of FV over implied value) (15,000) Gain 15,000 Increase Noncontrolling interest to fair value of assets Total allocated bargain Balance -0-
NonControlling Share 131,250 120,000 11,250 (4,000) (5,000) (6,000) (3,750) 3,750
-0-
Entire Value 656,250 600,000 56,250 (20,000) (25,000) (30,000) (18,750) 18,750
-0-
Exercise 5-11 Part 1 – Cost Method Computation and Allocation of Difference Schedule Parent Share
Purchase price and implied value Less: Book value of equity acquired Difference between implied and book value Inventory Equipment Balance
NonEntire Controlling Value Share 2,276,000 569,000 2,845,000 (2,000,000) (500,000) (2,500,000) 276,000 69,000 345,000 (36,000) (9,000) (45,000) (40,000) (10,000) (50,000) 200,000 50,000 250,000 5-1
Goodwill Balance
(200,000) -0-
(50,000) -0-
(250,000) -0-
2010 (1) Dividend Income Dividends Declared (To eliminate intercompany dividends)
16,000 16,000
(2) Beginning retained Earnings – Sand Capital Stock – Sand Difference between Implied & Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
700,000 1,800,000 345,000 2,276,000 569,000
(3) Cost of Goods Sold (beginning inventory) Depreciation Expense Equipment (net) Goodwill Difference between Implied and Book value (To allocate and then depreciate the difference between implied and book value)
45,000 6,250 43,750 250,000 345,000
2011 (1) Investment in Sand Company Beginning Retained Earnings P Company (To establish reciprocity /convert to equity methods as of 1/1/2011)
64,000
(2) Dividend Income Dividend Declared (To eliminate intercompany dividends)
24,000
64,000
24,000
5-2
(3) Beginning Retained Earnings – Sand Capital Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
780,000 1,800,000 345,000
(4) Beginning Retained Earnings – Piper Noncontrolling Interest Depreciation Expense Equipment (net) Goodwill Difference between Implied and Book value (To allocate and depreciate the difference between implied and book value)
45,000 10,250 6,250 37,500 250,000
2,340,000 585,000
345,000
2012 (1) Investment in Sand Company Beginning Retained Earnings – Piper Company (To establish reciprocity/convert to equity method as of 1/1/2012)
160,000 160,000
(2) Dividend Income Dividend Declared (To eliminate intercompany dividends)
12,000 12,000
(3) Beginning Retained Earnings – Sand Common Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
900,000 1,800,000 345,000 2,436,000 609,000
5-3
(4) Beginning retained Earnings – Piper Noncontrolling Interest Depreciation Expense Equipment (net) Goodwill Difference between implied and Book value (To allocate and depreciate the difference between implied and book value)
46,000 11,500 6,250 31,250 250,000 345,000
Part 2 – Partial Equity Method Computation and Allocation of Difference Schedule Parent Share
Purchase price and implied value Less: Book value of equity acquired Difference between implied and book value Inventory Equipment Balance Goodwill Balance
NonEntire Controlling Value Share 2,276,000 569,000 2,845,000 (2,000,000) (500,000) (2,500,000) 276,000 69,000 345,000 (36,000) (9,000) (45,000) (40,000) (10,000) (50,000) 200,000 50,000 250,000 (200,000) (50,000) (250,000) -0-0-0-
2010 (1) Equity in Subsidiary Income Dividend Declared Investment in Sand Company (To eliminate intercompany dividends and income)
80,000 16,000 64,000
(2) Beginning Retained Earnings – Sand Capital Stock – Sand Difference between Implied and Book value Investment in Sand Company
700,000 1,800,000 345,000 2,276,000 5-4
Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
569,000
(3) Cost of Goods Sold 45,000 Depreciation Expense 6,250 Equipment (net) 43,750 Goodwill 250,000 Difference between Implied and Book value 345,000 (To allocate and depreciate the differencebetween implied and book value) Part 2 – Partial Equity Method 2011 (1) Equity in Subsidiary Income Dividends Declared Investment in Sand Company (To eliminate intercompany dividends and income)
120,000 24,000 96,000
(2) Beginning Retained Earnings – Sand Capital Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
780,000 1,800,000 345,000
(3) Beginning Retained Earnings – Piper Noncontrolling Interest Depreciation Expense Equipment (net) Goodwill Difference between implied and Book value (To allocate and depreciate the difference between implied and book value)
41,000 10,250 6,250 37,500 250,000
2,340,000 585,000
345,000
5-5
2012 (1) Equity in Subsidiary Income Dividend Declared Investment in Sand Company (To eliminate intercompany dividends and income)
64,000 12,000 52,000
Part 2 – Partial Equity Method (2) Beginning Retained Earnings – Sand Common Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
900,000 1,800,000 345,000
(3) Beginning retained Earnings – Piper Noncontrolling Interest Depreciation Expense Equipment (net) Goodwill Difference between Implied and Book value (To allocate and depreciate the difference between implied and book value)
46,000 11,500 6,250 31,250 250,000
2,436,000 609,000
345,000
Part 3 – Complete Equity Method Computation and Allocation of Difference Schedule Parent Share
Purchase price and implied value Less: Book value of equity acquired Difference between implied and book value Inventory
NonEntire Controlling Value Share 2,276,000 569,000 2,845,000 (2,000,000) (500,000) (2,500,000) 276,000 69,000 345,000 (36,000) (9,000) (45,000) 5-6
Equipment Balance Goodwill Balance
(40,000) 200,000 (200,000) -0-
(10,000) 50,000 (50,000) -0-
(50,000) 250,000 (250,000) -0-
2010 (1) Equity in Subsidiary Income Dividend Declared Investment in Sand Company (To eliminate intercompany dividends and income)
29,000 16,000 13,000
(2) Beginning Retained Earnings Capital Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
700,000 1,800,000 345,000
(3) Cost of Goods Sold Depreciation Expense Equipment (net) Goodwill Difference between Implied and Book value (To allocate and depreciate the difference between implied and book value)
45,000 6,250 43,750 250,000
2,276,000 569,000
345,000
Part 3 – Complete Equity Method 2011 (1) Equity in Subsidiary Income Dividends Declared Investment in Sand Company (To eliminate intercompany dividends and income)
105,000 24,000 81,000
5-7
(2) Beginning Retained Earnings – Sand Capital Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
780,000 1,800,000 345,000 2,340,000 585,000
(3) Beginning Retained Earnings Noncontrolling Interest Depreciation Expense Equipment (net) Goodwill Difference between Implied and Book value (To allocate and depreciate the difference between implied and book value)
41,000 10,250 6,250 37,500 250,000 345,000
Part 3 – Complete Equity Method
2012 (1) Equity in Subsidiary Income Dividends Declared Investment in Sand Company (To eliminate intercompany dividends and income)
49,000 12,000 37,000
(2) Beginning retained Earnings – Sand Common Stock – Sand Difference between Implied and Book value Investment in Sand Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
900,000 1,800,000 345,000 2,436,000 609,000
(3) Beginning Retained Earnings – Piper Noncontrolling Interest Depreciation Expense
46,000 11,500 6,250 5-8
Equipment (net) Goodwill Difference between Implied and Book value (To allocate and depreciate the difference between implied and book value)
31,250 250,000 345,000
Exercise 5-13 Net Assets $2,300,000 (1,800,000) $500,000
Imputed Value ($) Recorded Value($) Unrecorded Values Allocated to identifiable assets Inventory ($) Equipment ($) Goodwill
$125,000 175,000 $300,000
Inventory Equipment Goodwill Revaluation Capital (To record the effects of pushed down values implied by purchased of its stock by Pascal Co.)
125,000 175,000 200,000 500,000
Problem 5-4 Part A Computation and Allocation of Difference Schedule Parent Share
Purchase price and implied value Less: Book value of equity acquired Difference between implied and book value Equipment Land
NonControlling Share $850,000 212,500 (504,000) (126,000) 346,000 86,500 (104,000) (26,000) (52,000) (13,000) 5-9
Entire Value 1,062,500 (630,000) 432,500 (130,000) (65,000)
Inventory Balance Goodwill Balance
(32,000) 158,000 (158,000) -0-
(8,000) 39,500 (39,500) -0-
(40,000) 197,500 (197,500) -0-
Part B and C – Worksheet Entries Cost Method Workpaper entries – Year 2010 (1) Dividend Income Dividends declared (To eliminate intercompany dividends)
20,000 20,000
(2) Beginning retained Earnings – Salem Company Common Stock – Salem Difference between Implied and Book value Investment in Salem Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
80,000 550,000 432,500
(3) Cost of Goods Sold Land Plant & Equipment Goodwill Difference between Implied and Book value (To allocate the difference between implied and book value)
40,000 65,000 130,000 197,500
850,000 212,500
(4) Depreciation Expense Plant & Equipment (To record depreciation 5 year life)
432,500
26,000 26,000
5 - 10
Cost Method – Worksheet Entries – Year 2011 (1) Investment in Salem Company Beginning retained Earnings – Porter Company (To establish reciprocity/convert to equity as of 1/1/2011)
60,000
(2) Dividend Income Dividends Declared (To eliminate intercompany dividends)
28,000
60,000
28,000
(3) Beginning retained Earnings – Salem Company Common Stock – Salem Difference between Implied and Book value Investment in Salem Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
155,000 550,000 432,500
(4) 1/1 Retained Earnings – Porter Company Noncontrolling Interest Land Plant & Equipment Goodwill Difference between Implied and Book value (To allocate the difference between implied and book value)
32,000 8,000 65,000 130,000 197,500
910,000 227,500
(5) 1/1 Retained Earnings – Porter Company Noncontrolling Interest Depreciation Expense Plant & Equipment (To record plant and equipment)
432,500
20,800 5,200 26,000 52,000
5 - 11
Partial Equity Method Workpaper entries – Year 2010 (1) Equity in Subsidiary Income Dividends Declared Investment in Salem Company (To eliminate intercompany dividends)
80,000 20,000 60,000
(2) Beginning Retained Earnings – Salem Company Common Stock – Salem Difference between Implied and Book value Investment in Salem Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
80,000 550,000 432,500
(3) Cost of Goods Sold Land Plant & Equipment Goodwill Difference between Implied and Book value (To allocate the difference between implied and book value)
40,000 65,000 130,000 197,500
850,000 212,500
(4) Depreciation Expense Plant & Equipment (To record depreciation 5 year life)
432,500
26,000 26,000
Partial Equity Method – Worksheet Entries – Year 2011 (1) Equity in Subsidiary Income Dividends Declared Investment in Salem Company (To eliminate intercompany dividends and income)
88,000 28,000 60,000
(2) Beginning retained Earnings – Salem Company Common Stock – Salem
155,000 550,000 5 - 12
Difference between Implied and Book value Investment in Salem Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
432,500 910,000 227,500
(3) 1/1 Retained Earnings – Porter Company Noncontrolling Interest Land Plant & Equipment Goodwill Difference between implied and Book value (To allocate the difference between implied and book value) (4) 1/1 Retained Earnings – Porter Company Noncontrolling Interest Depreciation Expense Plant & Equipment (To record the plant and equipment 5 years useful life)
32,000 8,000 65,000 130,000 197,500 432,500
20,800 5,200 26,000 52,000
Complete Equity Method Workpaper entries – Year 2010 (1) Equity in Subsidiary Income Dividends Declared Investment in Salem Company (To eliminate intercompany dividends) (2) Beginning Retained Earnings – Salem Company Common Stock – Salem Company Difference between Implied and Book value Investment in Salem Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
27,200 20,000 7,200 80,000 550,000 432,500 850,000 212,500
(3) Cost of Goods Sold Land
40,000 65,000 5 - 13
Plant & Equipment Goodwill Difference between Implied and Book value (To allocate the difference between implied and book value) (4) Depreciation Expense Plant & Equipment (To record depreciation 5 year useful life)
130,000 197,500 432,500
26,000 26,000
Complete Equity Method – Worksheet Entries – Year 2011 (1) Equity in Subsidiary Income Dividends Declared Investment in Salem Company (To eliminate intercompany dividends and income)
27,200 20,000 7,200
(2) Beginning Retained Earnings – Salem Company Common Stock – Salem Difference between implied and Book value Investment in Salem Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
80,000 550,000 432,500
(3) Investment in Salem Company Noncontrolling Interest Land Plant & Equipment Goodwill Difference between Implied and Book value (To allocate the difference between implied and book value)
32,000 8,000 65,000 130,000 197,500
850,000 212,500
(4) Investment in Salem Company Noncontrolling Interest Depreciation Expense
432,500
20,800 5,200 26,000 5 - 14
Plant & Equipment (To record plant & Equipment)
52,000
Part D Income Statement Sales Dividend Income Total Revenue Cost of Goods Sold Depreciation Expense Impairment loss Other Expenses Total Cost and Expense Net/Consolidated Income Noncontrolling Interest in Consolid. Income* Net Income to Retained Earnings
Porter Company
Salem Company
1,100,000 48,000 1,148,000 900,000 40,000
450,000
60,000 1,000,000 148,000
50,000 280,000 170,000
148,000
170,000
Eliminations Debit Credit
Noncontrolling Consolidated Interest Balances 1,550,000
48,000 450,000 200,000 30,000
1,550,000 1,100,000 96,000 47,500 110,000 1,353,500 196,500
26,000 47,500
19,300 19,300
121,500
(19,300) 177,200
Retained Earnings Statement 1/1 Retained Earnings: Porter Company
Salem Company Net Income from Above Dividends Declared: Porter Company Salem Company 12/31 Retained Earnings to Balance Sheet
500,000
148,000
32,000 41,600 230,000 170,000
120,000
230,000 121,500
546,400
19,300
(90,000) 558,000
177,200 (90,000)
(60,000) 340,000
5 - 15
425,100
48,000 168,000
(12,000) 7,300
633,600
Problem 5-4 (continued) Porter Salem Company Company Balance Sheet Cash 70,000 65,000 Accounts Receivable 260,000 190,000 Inventory 240,000 175,000 Investment in Salem Company 850,000 Difference between Implied and Book Value Land 320,000 Plant and Equipment 360,000 280,000 Goodwill Total Assets 1,780,000 1,030,000 Accounts Payable Notes Payable Common Stock: Porter Company Salem Company Retained Earnings from above 1/1 Noncontrolling Interest in Net Assets 12/31 Noncontrolling Interest in Net Assets Total Liabilities and Equity
132,000 90,000
Eliminations Debit Credit
120,000 432,500 65,000 130,000 197,500
Noncontrolling Consolidated Interest Balances 135,000 450,000 415,000
970,000 432,500 385,000 692,000 150,000 2,227,000
78,000 47,500
110,000 30,000
242,000 120,000
1,000,000 558,000
$1,780,000
1,000,000 550,000 340,000
1,030,000
*Noncontrolling Interest in Income =.212,500 + (230,000 – 80,000) x 20 Explanations of workpaper entries are on the following page.
5 - 16
550,000 425,000 8,000 10,400
1,938,500
168,400 242,500
1,938,500
7,300 224,100
633,600
231,400
231,400 2,227,000
Problem 5-4D explanation Computation and Allocation of Difference Schedule Parent Share Purchase price and implied value Less: Book value of equity acquired Difference between implied and book value Equipment Land Inventory Balance Goodwill Balance
$850,000 (504,000) 346,000 (104,000) (52,000) (32,000) 158,000 (158,000) -0-
NonControlling Share 212,500 (126,000) 86,500 (26,000) (13,000) (8,000) 39,500 (39,500) -0-
Entire Value 1,062,500 (630,000) 432,500 (130,000) (65,000) (40,000) 197,500 (197,500) -0-
Explanations of Workpaper entries: (1) Investment in Salem Company Beginning retained Earnings – Porter Company (To establish reciprocity/convert to equity method as of 1/1/12) (2) Dividend Income Dividends Declared (To eliminate intercompany dividends)
120,000 120,000
48,000 48,000
(3) Beginning Retained Earnings – Salem Company Common Stock Difference between Implied and Book value Investment in Salem Company noncontrolling interest account)
230,000 550,000 432,500
(4) 1/1 Retained Earnings Porter Company Noncontrolling Interest Land Plant & Equipment Goodwill Difference between Implied and Book value (To allocate investment account and create noncontrolling interest account)
32,000 8,000 65,000 130,000 197,500
(5) 1/1 Retained Earnings – Porter Company Noncontrolling Interest Depreciation Expense Plant & Equipment (To record plant & equipment)
970,000
432,500
41,600 10,400 26,000 78,000
5 - 17
Problem 5-4D explanation (6) Impairment Loss Goodwill (To record goodwill impairment) Part E
47,500 47,500
PORTER COMPANY AND SUBSIDIARY Consolidated Financial Statements For the Year Ended December 31, 2012 Consolidated Income Statement Sales Cost of Goods Sold Expenses: Depreciation Expense Impairment Loss Other Expenses Consolidated Income Noncontrolling Interest in Consolidated Income Net Income
$1,550,000 1,100,000 $96,000 47,500 110,000
Consolidated Statement of Retained Earnings Retained Earnings - Beginning of Year Add: Net Income Less Dividends Retained Earnings - End of Year
253,500 196,500 19,300 $177,200 $546,400 177,200 90,000 $633,600
Part E PORTER COMPANY AND SUBSIDIARY Consolidated Statement of Financial Position December 31, 2012 Assets Current Assets: Cash Accounts Receivable Inventory Noncurrent Assets: Plant and Equipment (net) Land Goodwill
$135,000 450,000 415,000
1,000,000
692,000 385,000 150,000 1,227,000
Total Assets
$2,227,000
Liabilities And Stockholders' Equity Liabilities: Accounts Payable
$242,000
5 - 18
Gross
Notes Payable Total Liabilities Stockholders' Equity Noncontrolling Interest in Net Assets Capital Stock Retained Earnings Total Liabilities and Stockholders' Equity
120,000 362,000 231,400 1,000,000 633,600
1,865,000 $2,227,000
Part F The effect on the consolidated balances if Salem Company uses the LIFO cost flow assumption in pricing out its inventory then the inventory would be higher by $40,000 because it would not have been sold. Also the noncontrolling inventory would be $8,000 higher and the beginning retained earnings would also be $32,000 higher and cost of goods that were sold during the year of acquisition would be lower. Part G Porter Company's Retained Earnings on 12/31/12 Porter Company's Share of the Increase in Salem Company's Retained Earnings from January 1, 2010 to December 31, 2012
$558,000 208,000
Cumulative Effect to December 31, 2012 of the Allocation and Depreciation ofthe Difference between Implied and Book value (Parent’s share) Allocated to: 2010 2011 2012 Inventory $32,000 $0 $0 Equipment 20,800 20,800 20,800 $52,800 $20,800 $20,800 Goodwill Impairment (2012) Controlling Interest in Consolidated Retained Earnings on 12/31/12
(94,400) (38,000) $633,600
Problem 5-13 Part A Equipment Land Patents Revaluation Capital
61,467 40,978 102,444 204,889
Implied fair value Book Value Amount to push down
888,889 (684,000) $204,889
5 - 19
Adjustment to: Equipment Land Patents
$61,467 $40,978 $102,444
Part B Worksheet entries (1) Common Stock – Sensor Other Contributed Capital – Sensor Retained Earnings – Sensor Revaluation Capital Investment in Sensor Company Noncontrolling Interest (To eliminate investment account and create noncontrolling interest account)
300,000 164,000 220,000 204,889 800,000 88,889
PRESS COMPANY AND SUBSIDIARY Consolidated Balance Sheet Workpaper January 1, 2011
Cash Receivables Inventory Investment in Sensor Company Buildings Equipment Land Patents Total Assets Liabilities: Common Stock: Press Company Sensor Company Other Contributed Capital: Press Company Sensor Company Retained Earnings: Press Company Sensor Company Revaluation Capital
Press Company 265,000 422,500 216,500 800,000 465,000 229,000 188,000 167,500 2,753,500
Sensor Company 38,000 76,000 124,000
Eliminations Dr. Cr.
Noncontrolling Consolidated Interest Balances $303,000 498,500 340,500
322,000 246,467 140,978 190,444 1,137,889
787,000 475,467 328,978 357,944 $3,091,389
667,000
249,000
$916,000
800,000
700,000
700,000 300,000
300,000
846,000
846,000 164,000
164,000
540,500
540,500 220,000 204,889
5 - 20
220,000 204,889
Noncontrolling Interest in Net Assets Total Liabilities and Equity
2,753,500
1,137,889
5 - 21
888,889
88,889 888,889
88,889
88,889 $3,091,389