35. Alon Company acquired 100 percent of Bradford Company's voting stock on January 1, 2017, by issuing 10,000 shares of $10 par value common stock (having a fair value of $14 per share). As of that date, Bradford had stockholders' equity totaling $105,000. Land shown on Bradford's accounting records was undervalued by $10.000. Equipment (with a five year remaining life) was undervalued by $5,000. A secret formula developed by Bradford was appraised at $20,000 with an estimated We of 20 years. The following are the separate financial statements for the two companies for the year ending December 31, 2021 There were no intra-entity payables on that date Credit balances are indicated by parentheses Allen Bradford Company Company Revenues $ 485,000) $(190,000) Cost of goods sold 150,000 70.000 Depreciation expense 130.000 52.000 Subsidiary earnings (66000) Net income $261000) $.(68000) Retained earnings, 1/1/21 $ (659.000) $(98.000) Not income (above) (261.000) (68,000) Dividends declared 175.500 40.000 Retained earnings, 12/31/21 $144,500 $(126,000) Current assets $268.000 $ 75,000 Investment in Bradford Company 216,000 -0- Land 427,500 58,000 Buildings and equipment (net) 713,000 161,000 Total assets $1,624 509 $294.000 Current liabilities S (190,000) $[103,000) (600,000 (60,000) Common stock (90,000) Additional paid in capital (5,000) Retained earnings, 12/31/21 (126.000) Totallabies and equity $(1.624,500) $(294.000) a Explain how Alen derived the $66.000 balance in the Subsidiary Earnings account b. Prepare a worksheet to consolidate the financial information for these two companies A B B D E F Computation of Goodwill (if any) Fair Value of Consideration transferred (10,000 x $14) Book value of S Co. Excess fair value over book Allocated to Land Allocated to equipment Allocated to secret formula Goodwill Analysis of Subsidiary earnings Bradford Company net income Additional equipment depreciation ($5,000/5years) Additional formula depreciation ($20,000/20 years) Equity in subsidiary earnings on parent books Problem 35 Journal Entries Consolidation Entry S: Common Stock Paid in Capital Retained Earnings (Beginning) Investment in Bradford Company Eliminate subsidiary equity (beginning retained earnings) Consolidation Entry A: Building Land Formula Investment in Bradford Company Allocate subsidiary acquisition date fair value adjustments. The financial statement given is for 2018. Therefore four years depreciation and amortization (2014 thru 2018) have already been taken. That leaves a fair value excess of $1,000 for equipment and $16,000 for formula. As land is not depreciated it gets the full $10,00. beginning retained earnings Consolidation Entry A: Building Land Formula Investment in Bradford Company Allocate subsidiary acquisition date fair value adjustments. The financial statement given is for 2018. Therefore four years depreciation and amortization (2014 thru 2018) have already been taken. That leaves a fair value excess of $1,000 for equipment and $16,000 for formula. As land is not depreciated it gets the full $10,00. Consolidation Entry I: Equity in Subsidiary Earnings Investment in Bradford Company Eliminate equity income - The entire equity income recorded in the parent Allen Company must be eliminated. Consolidation Entry D: Investment in Bradford Company Dividends Paid Eliminate intercompany dividend Consolidation Entry E: Depreciation Expense - Equipment Amortization Expense - Formula Formula Equipment Recognize current year excess fair value expenses.cess Totals Consolidation Entries Accounts Allen Co. Bradford Co. Debit Credit Income Statement Revenues (485,000) (190,000) Cost of goods sold 160,000 70,000 Depreciation expense 130,000 52,000 (E) Amortization expense (E) Equity in subsidiary earnings (66,000) (1) Net Income (261.000) (68,000) Statement of Retained Earnings Retained earnings 1/1 (659,000) (98,000) (S) Net income (above) (261,000) (68,000) Dividends paid 175,500 40,000 (D) Retained earnings 12/31 (744.500) (126,000) Balance Sheet Current assets 268,000 75,000 Investment in Bradford Co. 216,000 (D) (S) Land Buildings and equipment (net) Formula Total assets 427,500 713,000 58,000 (A) 161,000 (A) (A) 294.000 (E) (E) 1.624,500 Current liabilities (110,000) (19,000) 427,500 713,000 Buildings and equipment (net) Formula Total assets 58,000 (A) 161,000 (A) (A) 294,000 (E) (E) 1,624,500 Current liabilities Long-term liabilities Common stock Additional paid-in capital Retained earnings 12/31 Total Liabilities and Equity (110,000) (80,000) (600,000) (90,000) (744,500) (1,624,500) (19,000) (84,000) (60,000) (S) (5,000) (S) (126,000) (294,000) Parentheses indicate a credit balance
