On January 1, 2012, Aronsen Company acquired 75 percent of Siedel Company’s outs
ID: 2457393 • Letter: O
Question
On January 1, 2012, Aronsen Company acquired 75 percent of Siedel Company’s outstanding shares. Siedel had a net book value on that date of $520,000: common stock ($10 par value) of $280,000 and retained earnings of $240,000. Aronsen paid $450,000 for this investment. The acquisition-date fair value of the 25 percent noncontrolling interest was $150,000. The excess fair value over book value associated with the acquisition was used to increase land by $38,000 and to recognize copyrights (14-year remaining life) at $42,000. Subsequent to the acquisition, Aronsen applied the initial value method to its investment account. In the 2012–2013 period, the subsidiary’s retained earnings increased by $160,000. During 2014, Siedel earned income of $86,000 while declaring $26,000 in dividends. Also, at the beginning of 2014, Siedel issued 2,000 new shares of common stock for $51 per share to finance the expansion of its corporate facilities. Aronsen purchased none of these additional shares and therefore recorded no entry. Prepare the appropriate 2014 consolidation entries for these two companies.
Explanation / Answer
Consolidation entries for the year 2014 in the books of Aronsen company
Depreciation & Amortisation a/c Dr.(42000/14 years)
To Copy Rights a/c
(being copy rights amortisation portion recorded for the year)
3000
3000
Siedel company a/c(subsidiary) Dr.
To Profit & Loss a/c (for the share of retained earnings)
To Dividend received a/c (for the share of dividend received)
(being share of profits and dividend received from the subsidiary company-siedel recorded)
64500
45000
19500
Consolidation entries for the year 2014 in the books of Siedel company
Bank a/c Dr
To Share Capital A/c
To Security Premium A/c
(being shares are issued at $ 51/per share
with face value of $ 10/per share and premium $ 41/per share)
102000
20000 82000
Profit& Loss a/c Dr
To Reserves & Surplus
(being profit for the year 2014)
86000
86000
Reserves & Surplus a/c Dr
To Dividend Payable
(being dividend payable for the year 2014)
26000
Dividend payable ac Dr.
To Bank a/c (25%)
To Aronsen Company a/c (75%)
(Being dividend paid to the outsiders and due to holding company for its share)
26000
6500
19500
NOTE: Since the question specifically asking consolidated entries for the year 2014, no effect is given for the transactions occurred prior to 2014.
Date Particulars L F No. Debit in. $ Credit in. $ 2014Depreciation & Amortisation a/c Dr.(42000/14 years)
To Copy Rights a/c
(being copy rights amortisation portion recorded for the year)
3000
3000
"Siedel company a/c(subsidiary) Dr.
To Profit & Loss a/c (for the share of retained earnings)
To Dividend received a/c (for the share of dividend received)
(being share of profits and dividend received from the subsidiary company-siedel recorded)
64500
45000
19500
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