Exercise 7 (LO 4) Equity adjustments with preferred stock.

Brian Construction Company has the following stockholders equity on January 1, 2015, the date on which Roller Company purchases an 80% interest in the common stock for $720,000:

8% cumulative preferred stock (5,000 shares, $100 par)

500,000

8%

Common stock (40,000 shares, $20 par)

800,000

Retained earnings

200,000

Total stockholders equity

1,500,000

Brian Construction Company did not pay preferred dividends in 2014.

1. Prepare a determination and distribution of excess schedule. Assume that the preferred stocks liquidation value is equal to par and that any excess of cost is attributable to goodwill.

2. Assume Ace Construction has the following net income (loss) for 2015 and 2016 and does not pay any dividends:

2015 income

70,000

2016 income

40,000

Roller maintains its investment account under the cost method. Prepare the cost-to-equity conversion entries necessary on Roller Companys books to adjust its investment account to the simple equity balance as of January 1, 2017.

1-Determination and Distribution of Excess Schedule
	Company	Parent	NCI
	Implied	Price	Value
	Fair Value	80%	20%
Fair value of subsidiary	900,000	720,000	180,000
Less book value of interest acquired:
Common stock ($10 par)	800,000
Retained earnings	200,000
Preferred dividends in arrears	(40,000)
Total equity	960,000	960,000	960,000
Interest acquired		80%	20%
Book value		768,000	192,000
Excess of fair value over book value	(60,000)	(240,000)	(780,000)
Adjustment of identifiable accounts:
	Adjustment
Goodwill	(60,000)

Do I have the correct goodwill?