Homework Problem Set 4 (Chapter 4)Part I. Consolidation when NCI is present1. On January 1, 2011, Parrot Enterprise (PE) acquired a 55% interest in SonnManufacturing, Inc. (SM). PE paid for the transaction with $3 million cash and 500,000shares of PE common stock (par value $1.00 per share). At the time of the acquisition,SM?s book value was $16,970,000.On January 1, PE?s stock had a market value of $14.90 per share and there was nocontrol premium in this transaction. Any consideration transferred over book value is assigned to goodwill. SM had the following balances on January 1, 2011.Book Value1/1/2011Fair Value1/1/2011Land $1,700,000 $2,550,000Buildings (7- year remaining life) 2,700,000 3,400,000Equipment (5-year remaining life) 3,700,000 3,300,000For internal reporting purposes, PE employed the equity method to account for this investment.The following account balances are for the year ending December 31, 2011

Please help me with the homework!!! File is attached

Advanced Accounting Homework 4 Your Name: ______________________ Homework Problem Set 4 (Chapter 4) Part I. Consolidation when NCI is present 1. On January 1, 2011, Parrot Enterprise (PE) acquired a 55% interest in Sonn Manufacturing, Inc. (SM). PE paid for the transaction with $3 million cash and 500,000 shares of PE common stock (par value $1.00 per share). At the time of the acquisition, SM's book value was $16,970,000. On January 1, PE's stock had a market value of $14.90 per share and there was no control premium in this transaction. Any consideration transferred over book value is assigned to goodwill. SM had the following balances on January 1, 2011. Land Buildings (7- year remaining life) Equipment (5-year remaining life) Book Value 1/1/2011 $1,700,000 2,700,000 3,700,000 Fair Value 1/1/2011 $2,550,000 3,400,000 3,300,000 For internal reporting purposes, PE employed the equity method to account for this investment. The following account balances are for the year ending December 31, 2011 for both companies. 1 Advanced Accounting Homework 4 Income statement REVENUE Expenses Equity in subsidiary earnings Net income Statement of Retained Earnings Beginning bal. 1/1 Net income Dividend Ending bal. 12/31 Balance Sheet Current Assets Investment in Sub Land Building Equipment Goodwill Total Assets Accounts payable Notes Payable Common Stock Additional paid in capital NCI, 1/1 NCI, 12/31 Retained earnings, 12/31 Total Liabilities and Equity PE 12/31/2011 SM 12/31/2011 (298,000,000) 271,000,000 (4,361,500) (31,361,500) (103,750,000) 95,800,000 (7,950,000) (2,500,000) (31,361,500) 5,000,000 (28,861,500) (100,000) (7,950,000) 3,000,000 (5,050,000) 30,500,000 13,161,500 1,500,000 5,600,000 3,100,000 20,800,000 1,700,000 2,360,000 2,960,000 53,861,500 (3,100,000) (2,900,000) (19,000,000) 27,820,000 (4,900,000) (1,000,000) (6,000,000) (10,870,000) (28,861,500) (53,861,500) (5,050,000) (27,820,000) 2 Advanced Accounting Homework 4 Required: 1) Show your calculation of allocation, additional fair value amortization, and Goodwill. (3 points) 3 Advanced Accounting Homework 4 2) Prepare a consolidation worksheet for this business combination. (10 points) PE SM Debits (298,000,000) (103,750,000) 271,000,000 95,800,000 Income Statement Revenue Expenses Equity in Subsidiary Earnings (4,361,500) 0 (31,361,500) (7,950,000) (2,500,000) (100,000) (31,361,500) (7,950,000) 5,000,000 3,000,000 (28,861,500) (5,050,000) Current Assets 30,500,000 20,800,000 Investment in SM 13,161,500 0 Land 1,500,000 1,700,000 Building 5,600,000 2,360,000 Equipment 3,100,000 2,960,000 Total Assets 53,861,500 27,820,000 Accounts Payable (3,100,000) (4,900,000) 0 (1,000,000) Net Income Credits NCI Consolidated Balances Consolidation Net Income Net Income to NCI Net Income to PE Statement Of Retained Earnings Beginning Bal. 1/1 Net Income Dividend Ending Bal. 12/31 Balance Sheet Goodwill Notes Payable Common Stock (2,900,000) (6,000,000) (19,000,000) (10,870,000) Retained Earnings, 12/31 (28,861,500) (5,050,000) Total Liabilities and Equity (53,861,500) (27,820,000) Additional Paid-In Capital NCI, 1/1 NCI, 12/31 4 Advanced Accounting Homework 4 3) As of 12/31/2015, the book value of net assets of SM becomes $25,000,000. Assume there are no new stocks issued and all increases in the book value of net assets flow through SM's income statement and all decreases are due to dividend payout. What are the balances of the following items appeared on the consolidated balance sheet of this entity? (6 points) - PE's investment account: - Noncontrolling interest (NCI): - Goodwill - Land (assuming no new lands acquired, no lands sold by either company after 12/31/2011) 5 Advanced Accounting Homework 4 - Building (assuming no new building acquired, no buildings sold by either company after 12/31/2011, and PE uses the same depreciation policy as SM, i.e., the same remaining lives for each category of assets). Hint: note that the book values of these assets are depreciated using the same remaining lives too. 4) What is the amount of Building on consolidated financial statement as of 12/31/2018 (assuming no new building acquired, no buildings sold by either company after 12/31/2011, and PE uses the same depreciation policy as SM)? (1 point) 6 Advanced Accounting Homework 4 Part II. Consolidation when NCI is present: Mid-year acquisition Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2015: Gibson Davis (827,000) (372,000) Cost of goods sold 392,000 172,000 Operating expenses 224,000 83,000 Dividend income (58,320) 0 (269,320) (117,000) Retained earnings, 1/1/15 (710,000) (408,000) Net income (269,320) (117,000) 70,000 20,000 (909,320) (505,000) Cash and receivables 162,250 87,000 Inventory 596,000 227,000 Investment in Davis 605,070 0 Buildings (net) 573,000 664,000 Equipment (net) 409,000 434,000 Sales Net income Dividends declared Retained earnings, 12/31/15 2,345,320 1,412,000 Liabilities Total assets (806,000) (567,000) Common stock (630,000) (340,000) (909,320) (505,000) (2,345,320) (1,412,000) Retained earnings, 12/31/15 Total liabilities and stockholders' equity Gibson acquired 60 percent of Davis on April 1, 2015, for $558,750. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $63,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $372,500. Davis earned income evenly during the year but declared the $20,000 dividend on November 1, 2015. 7 Advanced Accounting Homework 4 Required: (1) (6 points) Prepare a consolidated income statement for the year ending December 31, 2015. (Hint: you need to first determine the annual amortization of fair value excess. To do so, you need to find out the acquisition date, i.e., 4/1/2015, book value of the subsidiary, and then determine the allocation.) Please clearly demonstrate how you calculate each number. Consolidated Income Statement For the Year Ending December 31, 2015 Sales COGS Operating expenses Consolidated Net Income Net income to NCI Net Income to CI 8 Advanced Accounting Homework 4 (2) (4 points) Determine the consolidated balance for each of the following accounts as of December 31, 2015. Demonstrate how you reach to your conclusions. Consolidated account balances 12/31/2015 Goodwill Equipment (net) Common stock Buildings (net) 9