On January 1, 2012, Aronsen Company acquired 75 percent of Siedel Company\'s out
ID: 2554353 • 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 expansiolülbf 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. (If no entry is required for a transactionlevent, select "No journal entry required" in the first account field.) Transaction Consolidating Entries Debit Credit (1) Prepare entry "C (2) Prepare entry C1 (3) Prepare entry SExplanation / Answer
Aronsen acquires 21,0000 shares (or 75%) of Siedel's outstanding shares (the total number of shares can be determined by dividing the subsidiary's common stock account by the $10 per share par value). After issuing 2,000 additional shares, the parent must prepare an adjustment to reflect the change in its share of the subsidiary’s unamortized acquisition-date fair value. Because that entry has not been recorded, it is included on the consolidation worksheet as Entry C1.
Excess Acquisition-Date Fair Value Allocation and Amortization
Fair value (consideration transferred plus NCI fair value) ............ $600,000
Acquisition-date book value.................................................................. (450,000)
Fair value in excess of book value ...................................................... $150,000
Allocated to land based on fair value.................................................. 38,000
Allocated to copyrights based on fair value...................................... $ 112,000
Life of copyrights ..................................................................................... 14 yrs
Annual amortization ................................................................................ $ 8,000
Adjustment for Stock Transaction
Adjusted acquisition-date fair value of subsidiary
on new issue date ($600,000 + $120,000 + $102,000) ............... $822,000
Adjusted parent ownership (21,000 shares ÷ 30,000 shares) ...... 70%
Parent’s post-issue equity method value ................................... $575,400
Equity method balance before new subsidiary stock issue
Consideration transferred................................................ 450,000
Increase in book value (75% × $160,000)..................... 120,000
Copyright amortization ($8,000 × 2 years × 75%)....... (12,000) 558,000
Required increase (Entry C1) ............................................................... $ 17,400
Consolidation worksheet entries:
Entry *C
Investment in Siedel ........................................................ 108,000
Retained Earnings, 1/1/14 (Aronsen) .................... 108,000
(To convert 1/1/14 balance to full accrual [$160,000 less
two year’s amortization expense $8,000 × 2] × 75%)
Entry C1
Investment in Siedel ........................................................ 17,400
Additional Paid-In Capital (Aronsen) ..................... 17,400
(To record adjustment for subsidiary stock
transaction; computation shown above.)
Entry S
Common Stock (Siedel) ................................................. 300,000
Additional Paid-In Capital (Siedel) ............................... 82,000
Retained Earnings, 1/1/14 (Siedel) ............................... 400,000
Investment in Siedel (70%) ...................................... 547,400
Noncontrolling Interest in Siedel, 1/1/14 (30%).... 234,600
(To eliminate subsidiary stockholders' equity accounts
against Investment account and to recognize noncontrolling
interest. Stockholders’ equity balances have been adjusted
for increase in book value during 2012–2013 and the issuance
by the subsidiary of 2,000 shares of stock on 1/1/14.)
Entry A
Land ................................................................................... 38,000
Copyrights ......................................................................... 26,000
Investment in Siedel (70%)....................................... 44,800
Noncontrolling Interest (30%) ................................. 19,200
(To recognize acquisition price allocated to land and
copyrights. Copyrights balance has been reduced for
2012–2013 amortization to arrive at 1/1/14 balance.
NCI now reflects 30% of the unamortized 1/1/14 balance.)
Entry I
Dividend Income .............................................................. 18,200
Dividends Declared ................................................... 18,200
(To eliminate intra-entity dividends recorded by
parent as income [70% × $26,000].)
Entry E
Amortization Expense .................................................... 8,000
Copyrights.................................................................... 8,000
(To recognize current year amortization.)
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