House Corporation has been operating profitably since its creation in 1960. At the beginning of 2016, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule:
Problem 7-25 (L0 7-2) House Corporation has been operating profitably since its creation in 1960. At the beginning of 2016, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule: Consideration transferred for 70% interest in Wilson 742,000 318,000 $1,060,000 813,000 Fair value of the 30% noncontrolling interest Wilson business fair value Wilson book value Excess fair value over book value S 247,000 Assignments to adjust Wilson's assets to fair value: To buildings (20-year remaining life) To equipment (4-year remaining life) To franchises (10-year remaining life) $ 97,000 (23,800) 73,000 146,200 100,800 To goodwill (indefinite life) House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House's purchases during 2016 and 2017 and related ending inventory balances follow: Intra-Entity Remaining Intra-Entity Inventory- End of Year (at transfer price) Year Purchases 2016 $135,000 162,500 $45,000 65,000 2017 On January 1, 2018, House and Wilson acted together as co-acquirers of 80 percent of Cuddy Company's outstanding common stock. The total price of these shares was $274,400, indicating neither goodwill nor other specific fair-value allocations. Each company put up one-half of the consideration transferred. During 2018, House acquired additional inventory from Wilson at a price of $209,000. Of this merchandise, 45 percent is still held at year-end. Cuddy Wilson House Corporation $(1,040,384) Company Company Sales and other revenues (315,300) (802,780) Cost of goods sold 605,000 308,000 144,000 Operating expenses Income of Wilson Company 307,000 (154,896) 273,500 99,500 Income of Cuddy Company (28,720) (28,720) 0 (312,000) (250,000) (71,800) Net income Retained earnings, 1/1/18 Net income (above) S (919,000) (312,000) 100,000 S (618,000) (250,000) 96,000 S (193,000) (71,800) 50,000 Dividends declared $ (1,131,000) S (772,000) (214,800) Retained earnings, 12/31/18 S Cash and receivables 74,634 394,250 910,196 220,080 530,000 75,000 156,100 Inventory Investment in Wilson Company Investment in Cuddy Company Buildings Equipment 0 145,920 145,920 0 489,000 335,000 162,000 200,000 95,500 17,200 482,000 Land 185,000 309,000 $2,681,000 $ 1,702,000 543,800 Total assets Liabilities S (730,000) (820,000) (1,131,000) S (620,000) (310,000) (772,000) S (179,000) (150,000) (214,800) Common stock Retained earnings, 12/31/18 Total liabilities and equities (2,681,000) (1,702,000) (543,800) HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2018 Consolidation Entries Noncontrolling Consolidated Wilson Cuddy Company House Accounts Debit Credit Balance Interest Corporation Company Sales and other revenue Cost of goods sold Operating expenses Income of Wilson Company (1,040,384) (802,780) (315,300) 605,000 308,000 144,000 273,500 99,500 307,000 (154,896) Income of Cuddy Company (28,720) (28,720) (312,000) (250,000) (71,800) Net income Consolidated net income Net income attributable to noncontrolling interest (Wilson) Net income attributable to noncontrolling interest (Cuddy) Net income attributable to House Corporation Retained earnings, 1/1/18: (919,000) House Corporation Wilson Company (618,000) Cuddy Company (193,000) Net income (312,000) (250,000) (71,800) Dividends declared House Corporation 100,000 Wilson Company 96.000 Cuddy Company 50,000 (1,131,000) (772,000) (214,800) Retained earnings, 12/31/18 Cash and receivables 74,634 220,080 75,000 Inventory 156,100 394,250 530,000 Investment in Wilson Company 910,196 Investment in Cuddy Company Buildings Equipment 145,920 145,920 200,000 489,000 335,000 482,000 162,000 95,500 185,000 309,000 17,200 Land Goodwill Franchise contracts 2,681,000 1,702,000 543,800 Total assets (730,000) (179,000) Liabilities (620,000) Noncontrolling interest in Cuddy Nancontrolling interest in Wilson Noncontrolling interest in subsidiary companies Common stock (150,000) (820,000) (310,000) Retained earnings (above) (772,000) (1,131,000) (214,800) (2,681,000) (1,702,000) (543,800) Total liabilities and equities Problem 7-25 (L0 7-2) House Corporation has been operating profitably since its creation in 1960. At the beginning of 2016, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule: Consideration transferred for 70% interest in Wilson 742,000 318,000 $1,060,000 813,000 Fair value of the 30% noncontrolling interest Wilson business fair value Wilson book value Excess fair value over book value S 247,000 Assignments to adjust Wilson's assets to fair value: To buildings (20-year remaining life) To equipment (4-year remaining life) To franchises (10-year remaining life) $ 97,000 (23,800) 73,000 146,200 100,800 To goodwill (indefinite life) House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House's purchases during 2016 and 2017 and related ending inventory balances follow: Intra-Entity Remaining Intra-Entity Inventory- End of Year (at transfer price) Year Purchases 2016 $135,000 162,500 $45,000 65,000 2017 On January 1, 2018, House and Wilson acted together as co-acquirers of 80 percent of Cuddy Company's outstanding common stock. The total price of these shares was $274,400, indicating neither goodwill nor other specific fair-value allocations. Each company put up one-half of the consideration transferred. During 2018, House acquired additional inventory from Wilson at a price of $209,000. Of this merchandise, 45 percent is still held at year-end. Cuddy Wilson House Corporation $(1,040,384) Company Company Sales and other revenues (315,300) (802,780) Cost of goods sold 605,000 308,000 144,000 Operating expenses Income of Wilson Company 307,000 (154,896) 273,500 99,500 Income of Cuddy Company (28,720) (28,720) 0 (312,000) (250,000) (71,800) Net income Retained earnings, 1/1/18 Net income (above) S (919,000) (312,000) 100,000 S (618,000) (250,000) 96,000 S (193,000) (71,800) 50,000 Dividends declared $ (1,131,000) S (772,000) (214,800) Retained earnings, 12/31/18 S Cash and receivables 74,634 394,250 910,196 220,080 530,000 75,000 156,100 Inventory Investment in Wilson Company Investment in Cuddy Company Buildings Equipment 0 145,920 145,920 0 489,000 335,000 162,000 200,000 95,500 17,200 482,000 Land 185,000 309,000 $2,681,000 $ 1,702,000 543,800 Total assets Liabilities S (730,000) (820,000) (1,131,000) S (620,000) (310,000) (772,000) S (179,000) (150,000) (214,800) Common stock Retained earnings, 12/31/18 Total liabilities and equities (2,681,000) (1,702,000) (543,800) HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2018 Consolidation Entries Noncontrolling Consolidated Wilson Cuddy Company House Accounts Debit Credit Balance Interest Corporation Company Sales and other revenue Cost of goods sold Operating expenses Income of Wilson Company (1,040,384) (802,780) (315,300) 605,000 308,000 144,000 273,500 99,500 307,000 (154,896) Income of Cuddy Company (28,720) (28,720) (312,000) (250,000) (71,800) Net income Consolidated net income Net income attributable to noncontrolling interest (Wilson) Net income attributable to noncontrolling interest (Cuddy) Net income attributable to House Corporation Retained earnings, 1/1/18: (919,000) House Corporation Wilson Company (618,000) Cuddy Company (193,000) Net income (312,000) (250,000) (71,800) Dividends declared House Corporation 100,000 Wilson Company 96.000 Cuddy Company 50,000 (1,131,000) (772,000) (214,800) Retained earnings, 12/31/18 Cash and receivables 74,634 220,080 75,000 Inventory 156,100 394,250 530,000 Investment in Wilson Company 910,196 Investment in Cuddy Company Buildings Equipment 145,920 145,920 200,000 489,000 335,000 482,000 162,000 95,500 185,000 309,000 17,200 Land Goodwill Franchise contracts 2,681,000 1,702,000 543,800 Total assets (730,000) (179,000) Liabilities (620,000) Noncontrolling interest in Cuddy Nancontrolling interest in Wilson Noncontrolling interest in subsidiary companies Common stock (150,000) (820,000) (310,000) Retained earnings (above) (772,000) (1,131,000) (214,800) (2,681,000) (1,702,000) (543,800) Total liabilities and equities
