Adam Company acquired 70% of the outstanding common stock of Saul Company on June 30, 2011 for $331,100. On that date, the fair value of the non-controlling interest was $141,900. On the acquisition date, Saul Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of cost over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Saul Company, which had an expected remaining useful life of five years from June 30, 2011. On December 31, 2011, Adam company sold equipment (with an original cost of $200,000 and accumulated depreciation of $50,000) to Saul Company for $175,000. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2012, Saul Company sold land to Adam Company at a profit of $30,000. Adam still holds the land acquired from Saul. The inventory of Adam Company on December 31, 2012 included goods purchased from Saul Company on which Saul recognized a profit of $7,500. During 2013, Saul Company sold goods to Adam Company for $375,000, of which $60,000 was unpaid at December 31, 2013. The December 31, 2013 inventory of Paul Company included goods acquired from Saul Company on which Saul recognized a profit of $10,500. During 2013 Adam Company sold goods to Saul Company for $600,000 at a markup on sales of 20%. At December 31, 2013, 30% of these goods remain unsold by Saul Company. Saul Company still owes Adam Company $100,000 for these inventory purchases. On January 1, 2013 Saul Company reports $600,000 in bonds outstanding with a book value of $564,000. Adam purchases half of these bonds on the open market for $291,000. Attribute the income effects of this transaction to the parent company.

Required: Carefully Follow and label each step. Follow instructions in Spreadsheet. Use cell references.

1. Prepare the acquisition analysis as of acquisition date. Compute the unamortized differential as of 1/1/2013.

2. Analyze each intercompany transaction. Label as either upstream downstream.

3. Calculate Net income to the controlling interest for the year 2013

4. Verify the calculation of the balance in the account equity in sub earnings and record the parent company entries with respect to its investment during 2013

5. Prepare all elimination entries for 2013.

6. Complete the consolidating spreadsheet for the year ended 2013.

Adam Company acquired 70% of the outstanding common stock of Saul Company on June 30, 2011 for $331,100. On that date, the fair value of the non-controlling interest was $141,900. On the acquisition date, Saul Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of cost over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Saul Company, which had an expected remaining useful life of five years from June 30, 2011. On December 31, 2011, Adam company sold equipment (with an original cost of $200,000 and accumulated depreciation of $50,000) to Saul Company for $175,000. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2012, Saul Company sold land to Adam Company at a profit of $30,000. Adam still holds the land acquired from Saul. The inventory of Adam Company on December 31, 2012 included goods purchased from Saul Company on which Saul recognized a profit of $7,500. During 2013, Saul Company sold goods to Adam Company for $375,000, of which $60,000 was unpaid at December 31, 2013. The December 31, 2013 inventory of Paul Company included goods acquired from Saul Company on which Saul recognized a profit of $10,500. During 2013 Adam Company sold goods to Saul Company for $600,000 at a markup on sales of 20%. At December 31, 2013, 30% of these goods remain unsold by Saul Company. Saul Company still owes Adam Company $100,000 for these inventory purchases. On January 1, 2013 Saul Company reports $600,000 in bonds outstanding with a book value of $564,000. Adam purchases half of these bonds on the open market for $291,000. Attribute the income effects of this transaction to the parent company. Required: Carefully Follow and label each step. Points 1. Prepare the acquisition analysis as of acquisition date. Compute the unamortized differential as of 1/1/2013. 10 2. Analyze each intercompany transaction. Label as either upstream downstream. 15 3. Calculate Net income to the controlling interest for the year 2013 20 4. Verify the calculation of the balance in the acccount equity in sub earnings and record the parent company entries with respect to its investment during 2013 20 5. Prepare all elimination entries for 2013. 20 6. Complete the consolidating spreadsheet for the year ended 2013. 15 total 100 INCOME STATEMENT FYE 12/31/13 Sales Equity in sub earnings Interest income-bonds Total revenues P CO. S CO. ELIMINATIONS DR. CR. CONS.TOT. 2,555,500 26,630 33,000 2,615,130 1,120,000 Cost of goods sold Expenses loss from bond extinguishment Interest expense-bonds Total expenses Total net income Less income to NCI Net income to controlling interest 1,730,000 654,500 690,500 251,000 2,384,500 230,630 72,000 1,013,500 106,500 230,630 106,500 2,420,500 905,500 0 72,000 3,398,000 337,130 0 337,130 Retained Earnings 1/1 819,670 211,500 1,031,170 Net income 230,630 106,500 337,130 Dividends declared 100,000 60,000 160,000 Retained Earnings 12/31 950,300 258,000 1,208,300 119,500 342,000 362,000 40,500 150,000 362,300 825,000 (207,000) 708,000 125,000 201,000 13,000 827,500 467,000 563,000 53,500 150,000 362,300 1,066,000 (260,000) 0 294,000 3,523,300 3,675,500 26,630 33,000 3,735,130 1,120,000 RETAINED EARNINGS STATEMENT BALANCE SHEET Cash Accounts receivable Inventory Other current assets Land Investment in S Property and equipment Accumulated depreciation MFG formula Investment in S bonds Total assets Accounts payable Other liabilities Bonds payable Discount on bonds payable Common stock Paid in capital Retained earnings Noncontrolling interest in sub Total liabilities and equity 294,000 2,288,300 295,000 43,000 241,000 (53,000) 1,235,000 1,000,000 0 950,300 32,000 19,000 600,000 (24,000) 300,000 50,000 258,000 2,288,300 1 1,235,000 1 0 0 1 327,000 62,000 600,000 (24,000) 1,300,000 50,000 1,208,300 0 3,523,300 1 Answer Sheet: Must use cell references from Spreadsheet TAB 1. What is the unamortized differential at January 1, 2013? 2. What amount of the intercompany Equipment gain or loss that must be confirmed in 2013? Enter as a positive value if gain or a negative value if loss. 3. What is the amount of the parent company intercompany inventory profit that must be unconfirmed in 2013? Enter as a positive value. 4. What is the amount of the subsidiary intercompany inventory profit that is confirmed in 2013? 5. What is the amount of the subsidiary intercompany inventory profit that is unconfirmed in 2013? Enter as a positive value. 6. What is the gain or loss on the extinguishment of the bond? Enter as a positive value if a gain and as as negative value if a loss. 7. What is the NonControlling Interest Claim on the Subsidiary's Net Income? Enter as a positive amount. 8. What is the Net Income Attributed to the Controlling Interest? 9. What are consolidated total assets in the Consolidated Balance Sheet? 10. What is the NonControlling Interest Claim on the Subsidiary's Equity at 12/31/13 as presented in the Consolidated Balance Sheet? 11. What is the adjustment to the land account in the elimination entries? Enter as a positive amount. 12. What is the total elimination for intercompany sales in 2013? Included both upstream and downstream sales. 13. What is the total intercompany receivable and payables eliminated? 14. What is the amortization of the differential in 2013? Enter Here WARNING! INSERTING OR CHANGING ANY FO this sheet will impact your grade!!! ORMAT ON Prepare the consolidated balance sheet only as of 12/31/13. show all elimination entries and supporting calculations this will be graded separately amort @ 13