On January 1, 2013, Mona, Inc., acquired 90 percent of Lisa Company’s common sto
ID: 2416088 • Letter: O
Question
On January 1, 2013, Mona, Inc., acquired 90 percent of Lisa Company’s common stock as well as 70 percent of its preferred shares. Mona paid $70,000 in cash for the preferred stock, with a call value of 110 percent of the $55 per share par value. The remaining 30 percent of the preferred shares traded at a $39,000 fair value. Mona paid $585,000 for the common stock. At the acquisition date, the noncontrolling interest in the common stock had a fair value of $65,000. The excess fair value over Lisa’s book value was attributed to franchise contracts of $54,000. This intangible asset is being amortized over a 30-year period. Lisa pays all preferred stock dividends (a total of $13,000 per year) on an annual basis. During 2013, Lisa’s book value increased by $115,000.
On January 2, 2013, Mona acquired one-half of Lisa’s outstanding bonds payable to reduce the business combination’s debt position. Lisa’s bonds had a face value of $105,000 and paid cash interest of 6 percent per year. These bonds had been issued to the public to yield 10 percent. Interest is paid each December 31. On January 2, 2013, these bonds had a total $84,000 book value. Mona paid $54,000, indicating an effective interest rate of 5 percent.
On January 3, 2013, Mona sold Lisa fixed assets that had originally cost $105,000 but had accumulated depreciation of $50,000 when transferred. The transfer was made at a price of $130,000. These assets were estimated to have a remaining useful life of 10 years.
The individual financial statements for these two companies for the year ending December 31, 2014, are as follows:
a. b. & c.
Prepare consolidation worksheet adjustment for 2013 to record the following.
On January 1, 2013, Mona, Inc., acquired 90 percent of Lisa Company’s common stock as well as 70 percent of its preferred shares. Mona paid $70,000 in cash for the preferred stock, with a call value of 110 percent of the $55 per share par value. The remaining 30 percent of the preferred shares traded at a $39,000 fair value. Mona paid $585,000 for the common stock. At the acquisition date, the noncontrolling interest in the common stock had a fair value of $65,000. The excess fair value over Lisa’s book value was attributed to franchise contracts of $54,000. This intangible asset is being amortized over a 30-year period. Lisa pays all preferred stock dividends (a total of $13,000 per year) on an annual basis. During 2013, Lisa’s book value increased by $115,000.
On January 2, 2013, Mona acquired one-half of Lisa’s outstanding bonds payable to reduce the business combination’s debt position. Lisa’s bonds had a face value of $105,000 and paid cash interest of 6 percent per year. These bonds had been issued to the public to yield 10 percent. Interest is paid each December 31. On January 2, 2013, these bonds had a total $84,000 book value. Mona paid $54,000, indicating an effective interest rate of 5 percent.
On January 3, 2013, Mona sold Lisa fixed assets that had originally cost $105,000 but had accumulated depreciation of $50,000 when transferred. The transfer was made at a price of $130,000. These assets were estimated to have a remaining useful life of 10 years.
The individual financial statements for these two companies for the year ending December 31, 2014, are as follows:
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