8 1 Intercompany Transactions and Consolidation - Part I 2 3 Facts: On January 1, Yr 1, Parent Co acquired 100% of Sub Co. Parent Co issued 100,000 shares of its 4 $10 par common stock, with a market price of $25 per share, for all of Sub Co's common stock. On that date the fair value of Sub Co's net assets equaled their respective book value, with the 5 exception of land which had a fair value that exceeded book value by $200,000. The fair value of Sub Co's identifiable intangibles (in process R&D) is $100,000. The in process R&D will be 6 amortized over a useful life of eight years. For the year ended December 31, Yr 1, Sub Co reported net income fo $350,000 and paid cash 7 dividends of $150,000. The stockholders' equity section of each company's balance sheet at December 31, Yr 1, was: 9 Parent Co Sub Co 10 Common stock 5,000,000 1,000,000 11 Additional paid-in capital 1,000,000 400,000 12 Retained earnings 3,000,000 500,000 13 9,000,000 1,900,000 14 15 Required: 16 Prepare the acquisition date and year-end consolidation workpaper eliminating journal entries. 17 18 Solution: 19 Acquisition date eliminating fournal entry 20 DR 21 Common stock (subsidiary) 1,000,000 22 Additional paid-in capital (subsidiary) 400,000 23 Retained earnings (subsidiary) (1) 300,000 24 Investment in subsidiary (2) 2,500,000 25 Noncontrolling interest (3) 26 Fixed assets (FMV adj for land) 200,000 27 Intangible assets (In process R&D) 100,000 28 Goodwill (4) 500,000 29 30 Calculations 31 (1) Beginning RE + Net Income - Dividends = Ending RE Roninninn DF 250.000 150.000 - 500 non Part I Solution Parti Part - Solution CR 0 22 + 120%