On January 1, 2020, P company acquires 90 percent of the outstaniding common stock of S company, in exchange for $1,710,
Posted: Tue Nov 16, 2021 8:46 am
On January 1, 2020, P company acquires 90 percent of the outstaniding common stock of S company, in exchange for $1,710,000 cash.
At the acquisition date, S company's total fair value, including the noncontrolling interest, was assessed at $1,900,000. Also at the acquisition date,
S company's book value was $725,000.(common stock 400,000, additional paid-in capital 60,000, retained earnings 265,000)
P company observed that S company had developed internally a customer base with an assed fair value of $800,000 that was not reflected on S company's books. The remaining useful life of cutomer base is ten years.
Book value Fair value
Customer base 0 800000
For internal reporting purposes, P company employs the equity method to account for this investment. The following account balances are for the year
ending December 31, 2020, for both companies. At year-end, there were no intra-entity receivables or payables.
P company S company
Revenues ($120,000) ($120,000)
Cost of goods sold 40,000 40,000
Depreciation expense
Amortization expense
Equity in income of Gardena ($121,500) 0
Net income ($437,000) ($215,000)
Retained earnings (1/1/2020) ($330,000) ($265,000)
Net income ($437,000) ($215,000)
Dividends declared 350,000 25,000
Retained earnings (12/31/2020)
Current assets
Investment in S company 1,854,000 0
Trademark
Property and equipment (net)
Patents
Total assets
Accounts payable
Common stock ($900,000) ($400,000)
Additional paid-in capital ($300,000) ($60,000)
Retained earnings (12/31/2020)
Total liabilities and equities
5. What is the consolidated balance for investment at December 31, 2020?
Your answer:
6. What is the consolidated balance for equiy in income of S company at December 31, 2020?
Your answer:
7. What is the consolidated balance for dividend declared at December 31, 2020?
Your answer:
8. What is the consolidated net income attributable to controlling interests (consolidated entity) of S company at December 31, 2020?
Your answer:
9. What is the consolidated balance for additional paid in capital at December 31, 2020?
Your answer:
10. What is the consolidated balance for common strock at December 31, 2020?
Your answer:
11. What is the consolidated balance for sales at December 31, 2020?
Your answer:
12. What is the consolidated balance for cost of goods sold at December 31, 2020?
Your answer:
13. What is the consolidated balance for beginning balance of retained earnings in 2020?
Your answer:
14. What is the total fair value of subsidiary at the acquision date (1/1/2020)? Hint: It is in the information provided
Your anwer:
15. Is customer base undervalued asset or overvalued asset?
Your answer:
16. Is incremental fair value on customer base debited or credited in Consolidation Journal Entry A?
Your answer:
At the acquisition date, S company's total fair value, including the noncontrolling interest, was assessed at $1,900,000. Also at the acquisition date,
S company's book value was $725,000.(common stock 400,000, additional paid-in capital 60,000, retained earnings 265,000)
P company observed that S company had developed internally a customer base with an assed fair value of $800,000 that was not reflected on S company's books. The remaining useful life of cutomer base is ten years.
Book value Fair value
Customer base 0 800000
For internal reporting purposes, P company employs the equity method to account for this investment. The following account balances are for the year
ending December 31, 2020, for both companies. At year-end, there were no intra-entity receivables or payables.
P company S company
Revenues ($120,000) ($120,000)
Cost of goods sold 40,000 40,000
Depreciation expense
Amortization expense
Equity in income of Gardena ($121,500) 0
Net income ($437,000) ($215,000)
Retained earnings (1/1/2020) ($330,000) ($265,000)
Net income ($437,000) ($215,000)
Dividends declared 350,000 25,000
Retained earnings (12/31/2020)
Current assets
Investment in S company 1,854,000 0
Trademark
Property and equipment (net)
Patents
Total assets
Accounts payable
Common stock ($900,000) ($400,000)
Additional paid-in capital ($300,000) ($60,000)
Retained earnings (12/31/2020)
Total liabilities and equities
5. What is the consolidated balance for investment at December 31, 2020?
Your answer:
6. What is the consolidated balance for equiy in income of S company at December 31, 2020?
Your answer:
7. What is the consolidated balance for dividend declared at December 31, 2020?
Your answer:
8. What is the consolidated net income attributable to controlling interests (consolidated entity) of S company at December 31, 2020?
Your answer:
9. What is the consolidated balance for additional paid in capital at December 31, 2020?
Your answer:
10. What is the consolidated balance for common strock at December 31, 2020?
Your answer:
11. What is the consolidated balance for sales at December 31, 2020?
Your answer:
12. What is the consolidated balance for cost of goods sold at December 31, 2020?
Your answer:
13. What is the consolidated balance for beginning balance of retained earnings in 2020?
Your answer:
14. What is the total fair value of subsidiary at the acquision date (1/1/2020)? Hint: It is in the information provided
Your anwer:
15. Is customer base undervalued asset or overvalued asset?
Your answer:
16. Is incremental fair value on customer base debited or credited in Consolidation Journal Entry A?
Your answer: