Father Inc, buys 80 percent of the outstanding common stock of Sam Corporation o
ID: 2418860 • Letter: F
Question
Father Inc, buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2009, for $680,000 cash. At the acquisition date, Sam's total fair value was assessed at $850,000 although Sam's book value was only $600,000. Also several individual items on Sam's financial records had fair values that differed from their book values as follows:
Land $60,000 BV $225,0000 FV
Buildings & Equipment (10 yr remaining life) $275,000 BV $250,000 FV
Copyright (20 yr life) $100,000 BV $200,000 FV
Notes payable (due in 8 yrs) ($130,000) BV ($120,000) FV
For internal reporting purposes, Father Inc. employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2009, for both companies. Using the acquisition method, determine consolidated balances for this business combination (through either individual computations or the use of a worksheet).
Revenues $(1,360,000) Father Co $(540,000) Sam Co
Cost of Goods Sold $700,000 (Father Co) $385,000 (Sam Co.)
Depreciation Expense $260,000 (Father Co) $10,000 (Sam Co)
Amortization Expense $0 (Father Co) $5,000 (Sam Co.)
Interest Expense $44,000 (Father Co) $5,000 (Sam Co)
Equity in income of Sam $(105,000) (Father Co) $0 (Sam Co)
Net Income $(461,000) (Father Co) $(135,000) (Sam Co)
Retained Earnings 1/1/09 $(1,265,000) (Father Co) $(440,000) (Sam Co
Net Income (above) $(461,000) (Father Co) $(135,000) (SAm Co)
Dividends paid $260,000 (Father Co) $65,000 (Sam Co)
Retained Earnings 12/31/09 $(1,466,000) (Father Co) $(510,000) (Sam Co)
Current Assets $965,000 (Father Co) $528,000 (Sam Co)
Investment in Sam $733,000 (Father Co) $0 (sam Co)
Land $292,000 (Father Co) $60,000 (Sam Co)
Buildings & Equipment (net) $877,000 (Father Co) $265,000 (Sam Co)
Copyright $0 (Father Co) $95,000 (Sam Co)
Total Assets $2,867,000 (Father co) $948,000 (Sam Co)
Accounts Payable $(191,000) (Father Co) $(148,000) (Sam Co)
Notes Payable $(460,000) (Father Co) $(130,000) (Sam Co)
Common Stock $(300,000) (Father Co) $(100,000) (Sam Co)
Additional paid in capital $(450,000) (Father Co) $(60,000) (Sam Co)
Retained Earnings (above) $(1,466,000) (Father Co) $(510,000) (Sam Co)
Total liabilities and equities $(2,867,000) (Father Co) $(948,000) (Sam Co)
Explanation / Answer
Consolidation Entries Noncontrolling Consolidated Particulars Father Sam Debit Credit Interest Totals Revenues (1,360,000) (540,000) (1,900,000) Cost of goods sold 700,000 385,000 1,085,000 Depreciation expense 260,000 10,000 (E)2,500 267,500 Amortization expense -0- 5,000 (E) 5,000 10,000 Interest expense 44,000 5,000 (E) 1,250 50,250 Equity in income of Sam (105,000) -0- (I) 105,000 -0- Separate company net income (461,000) (135,000) Consolidated net income (487,250) Noncontrolling interest in Sam's income (26,250) 26,250 Controlling interest in CNI (461,000) Retained earnings 1/1 (1,265,000) (440,000) (S) 440,000 (1,265,000) Net income (above) (461,000) (135,000) (461,000) Dividends paid 260,000 65,000 (D) 52,000 13,000 260,000 Retained earnings 12/31 (1,466,000) (510,000) (1,466,000) Current assets 965,000 528,000 1,493,000 Investment in Sam 733,000 (D) 52,000 (S) 480,000 (I) 105,000 (A) 200,000 -0- Land 292,000 60,000 (A) 165,000 517,000 Buildings and equipment (net) 877,000 265,000 (E) 2,500 (A) 25,000 1,119,500 Copyright -0- 95,000 (A) 100,000 (E) 5,000 190,000 Total assets 2,867,000 948,000 3,319,500 Accounts payable (191,000) (148,000) (339,000) Notes payable (460,000) (130,000) (A) 10,000 (E) 1,250 (581,250) NCI in Sam 1/1 (S) 120,000 NCI in Sam 12/31 (A) 50,000 (170,000) (183,250) (183,250) Common stock (300,000) (100,000) (S) 100,000 (300,000) Additional paid-in capital (450,000) (60,000) (S) 60,000 (450,000) Retained earnings 12/31 (1,466,000) (510,000) (1,466,000) Total liab. and stockholders' equity (2,867,000) (948,000) (3,319,500)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.