11/02/2017 ACCT 401/601 bonus test On January 1, 2011, Rand Corp, issued shares
ID: 2583838 • Letter: 1
Question
11/02/2017 ACCT 401/601 bonus test On January 1, 2011, Rand Corp, issued shares of its common stock to acquire all of the outstanding common stock of Spaulding Inc. Spaulding's book value was only $140,000 at the time, but Rand issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. Rand was willing to convey these shares because it felt that buildings (ten-year life) were undervalued on Spaulding's records by $60,000 while equipment (five-year life) was undervalued by $25,000. Any consideration transf acquired is assigned to goodwill. Following are the individual financial reconds for these two companies for the year ended December 31, 2014. December 31, 2014. Com Spaulding S 372,000 Inc. $108,000 Revenues Expenses (72,000) (264,000) 25.000 Equity in subsidiary earnings Net income Retained earnings, January 1, 2014 s 765,000 133,000 S102,000 36,000 Net income (above) Dividends paid Retained earnings, December 31, 2014 s 150,000 242,000 525,000 Current assets 22,000 Investment in Spaulding Inc. Buildings (net) Equipment (net) Total assets 0 85,000 389.25129.000 S1. 306.250 S236.000 Common stock Additional paid-in capital Retained earnings, December 31, 2014 (above) Total liabilities and stockholders' equity S50,000 72,000 0 -614.000-114,000 S1.306250 $236.000 S 82.250 360,000 50,000Explanation / Answer
Computation of consolidation worksheet:
Rand Corp.
Spaulding Inc.
Debit
Credit
Consolidation Balance
Revenues
$372,000
$108,000
-
-
$480,000
Expenses (note-1)
(264,000)
(72,000)
11,000 (E)
-
(347,00)
Equity in subsidiary earnings
25,000
0
25,000 (I)
-
0
Net income
$133,000
$36,000
$133,000
Retained earnings January 1, 2012
$765,000
102,000
102,000 (S)
$765,000
Net income (above)
133,000
36,000
133,000
Dividends paid
(84,000)
(24,000)
24,000 (D)
(84,000)
Retained earnings, December 31, 2012
$814,000
114,000
$814,000
Current assets
$150,000
$22,000
$172,000
Investment in Spaulding Inc.
242,000
0
24,000 (D)
174,000 (S)
67,000 (A)
25,000 (I)
Buildings (net)
525,000
85,000
42,000 (A)
6,000 (E)
646,000
Equipment (net)
389,250
129,000
10,000(A)
5,000 (E)
523,250
Goodwill (note-2)
15,000 (A)
15,000
Total assets
$1,306,250
$236,000
1,356,250
Liabilities
$82,250
$50,000
132,250
Common stock
360,000
72,000
72,000(S)
360,000
Additional paid-in capital
50,000
0
50,000
Retained earnings, December 31, 2012 (above)
814,000
114,000
814,000
Total liabilities and stockholders' equity
$1,306,250
$236,000
1,356,250
Note-1:
Amortization expenses:
Building = 60,000/10years= 6,000
equipment = 25,000/ 5years = 5,000
Total expenses = 6,000+ 5,000 = 11,000
Note-2: Good will:
Purchase consideration = $240,000
Less: Book value = 140,000
Excess over book value = $100,000
Less: undervalued assets:
Building = 60,000
Equipment= 25,000
Balance, Goodwill = $15,000
Rand Corp.
Spaulding Inc.
Debit
Credit
Consolidation Balance
Revenues
$372,000
$108,000
-
-
$480,000
Expenses (note-1)
(264,000)
(72,000)
11,000 (E)
-
(347,00)
Equity in subsidiary earnings
25,000
0
25,000 (I)
-
0
Net income
$133,000
$36,000
$133,000
Retained earnings January 1, 2012
$765,000
102,000
102,000 (S)
$765,000
Net income (above)
133,000
36,000
133,000
Dividends paid
(84,000)
(24,000)
24,000 (D)
(84,000)
Retained earnings, December 31, 2012
$814,000
114,000
$814,000
Current assets
$150,000
$22,000
$172,000
Investment in Spaulding Inc.
242,000
0
24,000 (D)
174,000 (S)
67,000 (A)
25,000 (I)
Buildings (net)
525,000
85,000
42,000 (A)
6,000 (E)
646,000
Equipment (net)
389,250
129,000
10,000(A)
5,000 (E)
523,250
Goodwill (note-2)
15,000 (A)
15,000
Total assets
$1,306,250
$236,000
1,356,250
Liabilities
$82,250
$50,000
132,250
Common stock
360,000
72,000
72,000(S)
360,000
Additional paid-in capital
50,000
0
50,000
Retained earnings, December 31, 2012 (above)
814,000
114,000
814,000
Total liabilities and stockholders' equity
$1,306,250
$236,000
1,356,250
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