Exercise 4 On January 1, 2018, Blue Corp. purchased 70.00% of the net assets of Yellow Corp. for $205,296. The fair value of Yellow Corp. on January 1, 2011 is estimated to be $293,280. The write-up of the Buildings and Equipment from book value to fair market value amounted to 55.00% of the total differential. The write-up of the Land from book value to fair market value amounted to 10.00% of the total differential. The remaining 35.00% of the total differential is attributable to Goodwill. The remaining useful life of the Buildings and Equipment is assumed to be 10 years. Goodwill is impaired at the end of 2018 and 2019 and must be written down, each year, by 13.00% of its original (initial) value. The company uses the equity method approach to account for the goodwill impairment. A complete set of financial statements for fiscal years 2018 and 2019 for Blue Corp. is located in Exhibit 1. A complete set of financial statements for fiscal years 2018 and 2019 for Sunbeam Corp. is located in Exhibit 2. 1) Based on the purchase price, calculate the purchased differential (in dollars), as well as the purchased differential (in dollars) applied to: i) Buildings and Equipment, ii) Land and iii) Goodwill. (Show all calculations) 2) Based on the fair value, calculate the total differential (in dollars), as well as the total differential (in dollars) applied to: i) Buildings and Equipment, ii) Land and iii) Goodwill. (show all calculations) 3) For fiscal year 2018, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 4) For fiscal year 2018 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 5) For fiscal year 2018, create the consolidated financial statements using the 3-step worksheet. 6) For fiscal year 2019, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 7) For fiscal year 2019 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 8) For fiscal year 2019, create the consolidated financial statements using the 3-step worksheet. Exhibit 1 Blue Corp. 12/31/18 Blue Corp 12/31/19 Income Statement Sales CGS Depreciat. & Amort. Other Expenses Company Net Income Income from Subsidiary Net Income $ 1,069,250 $ 1.176,175 $ 763,750 $ 840,125 $ 38,187 $ 38,187 $ 114,563 $ 126,019 $ 152,750 $ 171,844 $ 59,642 $ 65,897 $ 212,392 $ 237,741 Statement of Retained Earnings Retained Earnings 1/1/X7 Net Income (from Above) Dividends Declared Retained Earnings 12/31//X7 $ $ $ $ 290,000 $ 212,392 $ 76,375 $ 426,017 $ 426,017 237,741 118,870 544,887 Balance Sheet Cash AR Inventory Land $ $ $ $ 404,114 $ 106,925 $ 267,312 $ 122,200 $ 496,708 117,618 294,044 122,200 $ $ $ 763,750 $ 168,188 $ 595,562 $ 763,750 206,375 557,375 Build&Equip-HC Acc Dep Build&Equip-Net Investment in Subsidiary Goodwill Differential Total Assets $ $ 243,553 $ 281,285 $ 1,739,667 $ 1,869,229 AP Bonds Payable Total Liabalities $ $ $ 106,925 $ 595,725 $ 702,650 $ 117,618 595,725 713,342 Shareholders Equity Common Stock Retained Earings (from Above) Total Shareholders equity $ 611,000 $ $426,017 $ $ 1,037,017 $ 611,000 544,887 1,155,887 TL+TSE $ 1,739,667 $ 1,869,229 Balance Exhibit 2 Yellow Corp. Yellow Corp. 12/31/18 12/31/19 $ 611,000 S 641,550 Income Statement Sales Income from Subsidiary Total Sales $ 611,000 $ 641,550 CGS Company Net Income Other Expenses Net Income $ 381,875 $ 397,761 $ 22,912 $ 22,912 $ 114,563 $ 120,291 $ 91,650 $ 100,586 Net Income (from Above) Retained Earnings (BOY) Net Income (from above) Dividends Declared Retained Earnings (EOY) $ 152,750 $ 213,850 $ 91,650 $ 100,586 $ 30,550 $ 40,234 $ 213,850 $ 274,202 Balance Sheet Cash AR Inventory Land nu $ 38,187 $ $ 84,012 $ $ 152,750 $ $ 30,550 $ 72,190 96,232 192,465 30,550 Build&Equip-HC Acc Dep Build&Equip-Net $ 229,125 $ 229,125 $ 114,563 $ 137,475 $ 114,563 $ 91,650 Total Assets $ 420,062 $ 483,087 AP Bonds Payable Total Liabalities $ 53,462 $ 56,136 $ 76,375 $ 76,375 $ 129,838 $ 132,511 Shareholders Equity Common Stock $ 76,375 $ 76,375 Retained Earings (from Above $ 213,850 $ 274,202 Total Shareholders equity$ 290,225 $ 350,577 TL+TSE $ 420,062 $ 483,087 Balance Exercise 4 On January 1, 2018, Blue Corp. purchased 70.00% of the net assets of Yellow Corp. for $205,296. The fair value of Yellow Corp. on January 1, 2011 is estimated to be $293,280. The write-up of the Buildings and Equipment from book value to fair market value amounted to 55.00% of the total differential. The write-up of the Land from book value to fair market value amounted to 10.00% of the total differential. The remaining 35.00% of the total differential is attributable to Goodwill. The remaining useful life of the Buildings and Equipment is assumed to be 10 years. Goodwill is impaired at the end of 2018 and 2019 and must be written down, each year, by 13.00% of its original (initial) value. The company uses the equity method approach to account for the goodwill impairment. A complete set of financial statements for fiscal years 2018 and 2019 for Blue Corp. is located in Exhibit 1. A complete set of financial statements for fiscal years 2018 and 2019 for Sunbeam Corp. is located in Exhibit 2. 1) Based on the purchase price, calculate the purchased differential (in dollars), as well as the purchased differential (in dollars) applied to: i) Buildings and Equipment, ii) Land and iii) Goodwill. (Show all calculations) 2) Based on the fair value, calculate the total differential (in dollars), as well as the total differential (in dollars) applied to: i) Buildings and Equipment, ii) Land and iii) Goodwill. (show all calculations) 3) For fiscal year 2018, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 4) For fiscal year 2018 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 5) For fiscal year 2018, create the consolidated financial statements using the 3-step worksheet. 6) For fiscal year 2019, provide ALL journal entries (and t-accounts) used by the parent company to account for its investment in the subsidiary using the equity method. 7) For fiscal year 2019 provide ALL eliminating entries (and t-accounts) necessary to create consolidated financial statements. 8) For fiscal year 2019, create the consolidated financial statements using the 3-step worksheet. Exhibit 1 Blue Corp. 12/31/18 Blue Corp 12/31/19 Income Statement Sales CGS Depreciat. & Amort. Other Expenses Company Net Income Income from Subsidiary Net Income $ 1,069,250 $ 1.176,175 $ 763,750 $ 840,125 $ 38,187 $ 38,187 $ 114,563 $ 126,019 $ 152,750 $ 171,844 $ 59,642 $ 65,897 $ 212,392 $ 237,741 Statement of Retained Earnings Retained Earnings 1/1/X7 Net Income (from Above) Dividends Declared Retained Earnings 12/31//X7 $ $ $ $ 290,000 $ 212,392 $ 76,375 $ 426,017 $ 426,017 237,741 118,870 544,887 Balance Sheet Cash AR Inventory Land $ $ $ $ 404,114 $ 106,925 $ 267,312 $ 122,200 $ 496,708 117,618 294,044 122,200 $ $ $ 763,750 $ 168,188 $ 595,562 $ 763,750 206,375 557,375 Build&Equip-HC Acc Dep Build&Equip-Net Investment in Subsidiary Goodwill Differential Total Assets $ $ 243,553 $ 281,285 $ 1,739,667 $ 1,869,229 AP Bonds Payable Total Liabalities $ $ $ 106,925 $ 595,725 $ 702,650 $ 117,618 595,725 713,342 Shareholders Equity Common Stock Retained Earings (from Above) Total Shareholders equity $ 611,000 $ $426,017 $ $ 1,037,017 $ 611,000 544,887 1,155,887 TL+TSE $ 1,739,667 $ 1,869,229 Balance Exhibit 2 Yellow Corp. Yellow Corp. 12/31/18 12/31/19 $ 611,000 S 641,550 Income Statement Sales Income from Subsidiary Total Sales $ 611,000 $ 641,550 CGS Company Net Income Other Expenses Net Income $ 381,875 $ 397,761 $ 22,912 $ 22,912 $ 114,563 $ 120,291 $ 91,650 $ 100,586 Net Income (from Above) Retained Earnings (BOY) Net Income (from above) Dividends Declared Retained Earnings (EOY) $ 152,750 $ 213,850 $ 91,650 $ 100,586 $ 30,550 $ 40,234 $ 213,850 $ 274,202 Balance Sheet Cash AR Inventory Land nu $ 38,187 $ $ 84,012 $ $ 152,750 $ $ 30,550 $ 72,190 96,232 192,465 30,550 Build&Equip-HC Acc Dep Build&Equip-Net $ 229,125 $ 229,125 $ 114,563 $ 137,475 $ 114,563 $ 91,650 Total Assets $ 420,062 $ 483,087 AP Bonds Payable Total Liabalities $ 53,462 $ 56,136 $ 76,375 $ 76,375 $ 129,838 $ 132,511 Shareholders Equity Common Stock $ 76,375 $ 76,375 Retained Earings (from Above $ 213,850 $ 274,202 Total Shareholders equity$ 290,225 $ 350,577 TL+TSE $ 420,062 $ 483,087 Balance