On January 1, 20X1, Powers Company acquired 80% of the common stock of Sculley C
ID: 2484794 • Letter: O
Question
On January 1, 20X1, Powers Company acquired 80% of the common stock of Sculley Company for $195,000. On this date Sculley had total owners equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively).
Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents. FIFO is used for inventories. The equipment has a remaining life of five years and straight-line depreciation is used. The excess to the patents is to be amortized over 20 years.
On July 1, 20X2 Sculley borrowed $100,000 from Powers with a 10% 1-year note; interest is due at maturity.
On January 1, 20X2, Powers held merchandise acquired from Sculley for $10,000. During 20X2, Sculley sold merchandise to Powers for $50,000, $20,000 of which is still held by Powers on December 31, 20X2. Sculley's usual gross profit on affiliated sales is 50%.
On December 31, 20X1, Powers sold equipment to Sculley at a gain of $10,000. During 20X2, the equipment was used by Sculley. Depreciation is being computed using the straight-line method, a five-year life, and no salvage value.
Both companies have a calendar-year fiscal year.
Assume that during 20X1 and 20X2, Powers has appropriately accounted for its investment in Sculley using the simple equity method.
a. Using the information above prepare a determination and distribution of excess schedule.
b. Complete a worksheet for consolidated financial statements for the year ended December 31, 20X2.
Explanation / Answer
A. Determination and Distribution of Excess Schedule
Adjustment of identifiable accounts:
Particulars Company Implied Fair Value $ Parent Price 80% $ NCI Value 20% $ Fair value of subsidiary 2,00,000 1,60,000 40,000 Less book value of interest acquired:Common stock (1,60,000) 1,60,000 1,60,000 Interest Aquired 80% 20% Book Value 1,28,000 32,000 Excess of fair value over book
value 40,000 32,000 8,000
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