Workpapers in year of acquisition (excess recorded for inventory, building, equi

Question

Workpapers in year of acquisition (excess recorded for inventory, building, equipment, patents and goodwill) Par Corportion acquired a 70 percent Su oa January 1,2011,for S980,000 cash.The stockholders' equity (book value) of Sul on this date con- isted of S1,000,000 capital stock and $200,000 retained earnings. The differences between the fair value of Sul and the book value of Sul were assigned o undervalued buildings, $42,000 to undervalued equipmen, and trademarks. Any remaining excess is goodwill. nterest in Sul Corporation's outstanding voting common stock 10,000 to Sul's undervalued inventory, $28,000 S80,000 to previously unrecorded The undervalued inventory items were sold during 2011, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. The trademarks have a 40-year life. Depreciation is straight line. At December 31, 2011, Sul's accounts payable include S20.000 owed to ParThis S20,000 account payable is due on January 15,2012. Separale financial statements for Par and Sul for 2011 are summarized as follows (in thousands): Sul Combined Income and Retained Earnings Statements for the Year Ended December 31 S1,600 $1.400 Income from Sul Cost of sales Deprecialion expense Oher expenses 119 (308) 491 (800) (120) Net incomc Add: Retained earnings January 1 Deduct: Dividends 200 200 600 Relained earnings December 3 Balance Sheet at December 31 Cash Dividends receivable Other curent assets S 172 S 120 140 200 28 200 140 1,140 1,029 Lnvesument in Su Total asses Accounts payable Dividends payable Other liabilities Capital stock, $20 par Retained earnings S 400 S 170 190 ,000 98 Total equities REQUIRED: Prepare consolidation December 31.2011. Use an unamortized excess account. for Par Corporatioo and Subsidiary for the year ended

Explanation / Answer

Allocation of excess cost over book value acquired Cost of 70% interest in Sul, Jan 1, 2011 $980,000 Implied Total Fair Value of Sul(980000/70%) $1,400,000 Book value of Sul's Net Assets (100%) $1,200,000 Excess cost over book value acquired $200,000 Excess Allocated Undervalued Inventory items sold in 2011 $10,000 Undervalued Building (7 years life) $28,000 Undervalued Equipment (3 years life) $42,000 Unrecorded Trademarks $80,000 Remaining To Goodwill $40,000 Excess fair value over book value $200,000 Journal entries for Consolidation Working paper for 2011 a. Income from Sul $119,000              Dividend - Sul (100000 x 70%) $70,000              Investment in Sul $49,000 b. Capital Stock - Sul $1,000,000       Retained Earnings - Sul 1/1/2011 $200,000       Unamortized excess $200,000                 Investment in Sul $980,000                 Noncontrolling Interest $420,000 c. Cost of sales (For inventory items) $10,000     Building - net $28,000     Equipment - net $42,000     Trademarks $80,000     Goodwill $40,000             Unamortized excess $200,000 d. Depreciation $18,000              Building - net $4,000              Equipment - net $14,000 e. Other expenses $2,000                 Trademarks $2,000       (trademarks amortized over 40 years life) f. Accounts Payable $20,000            Accounts receivable $20,000 g. Dividend payable $28,000            Dividend receivable $28,000 h. Noncontrolling Interest Income $51,000            Dividend - Sul (100000 x 30%) $30,000            Noncontrolling Interest $21,000 Par Corporation and Subsidiary Consolidation Workpapers for the year ended December 31, 2011 Consolidation Entries Consolidated Accounts Par Sul Debit Credit Totals Sales $1,600 $1,400 $3,000 Income from Sul $119 $119 $0 Cost of sales ($600) ($800) $10 ($1,410) Depreciation expenses ($308) ($120) $18 ($446) Other expenses ($320) ($280) $2 ($602) Net Income $491 $200 $542 Consolidated Net Income $542 NCI share of CNI $51 ($51) Par share of CNI $491 Retained Earnings Retained earnings,1/1 $600 $200 $200 $600 Net Income $491 $200 $491 Dividends declared ($400) ($100) $100 ($400) Retained earnings, 31/12 $691 $300 $691 Balance Sheet Cash $172 $120 $292 Accounts receivable $200 $140 $20 $320 Dividend receivable $28 $28 $0 Inventories $300 $200 $500 Other current assets $140 $60 $200 Land $100 $200 $300 Building - net $280 $320 $28 $4 $624 Equipment - net $1,140 $660 $42 $14 $1,828 Investment in Sul $1,029 $1,029 $0 Patents $80 $2 $78 Goodwill $40 $40 Unamortized excess $200 $200 $0 Total Assets $3,389 $1,700 $4,182 Accounts payable $400 $170 $20 $550 Dividends payable $200 $40 $28 $212 Other Liabilities $98 $190 $288 Capital Stock, $20 par $2,000 $1,000 $1,000 $2,000 Retained Earnings $691 $300 $691 Noncontrolling Interest $441 $441 Total Liabilities and Equity $3,389 $1,700 $1,838 $1,838 $4,182

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.