On December 31, 200X P Corporation paid $300,000 cash for 80% of the common stock of S Company which becomes a subsidiary. Following information is shown prior to the acquisition being recorded: P Company Assets Liabilities and Equity Cash 580,000 Liabilities 90,000 Inventories 60,000 Plant 340,000 Common Stock, $5pv 100,000 Paid in Capital 200,000 Retained Earnings 590,000 Total 980,000 Total 980,000 S Company Assets Liabilities and Equity Inventories 20,000 Liabilities 30,000 Other assets 40,000 Long Term Debt 50,000 Plant 140,000 Common Stock, $10pv 40,000 Paid in Capital 20,000 Retained Earnings 60,000 Total 200,000 Total 200,000 S market values are: Plant $250,000 Inventory $50,000 1. Prepare the entries in journal format to record the acquisition and post to the general edger accounts. 2. Prepare a consolidation workpaper. 3. Prepare consolidated balance sheet.

UNIT 4 POST PROBLEM 1 TEMPLATE P CORPORATION AND S CO. Working Paper for Consolidated Balance Sheet 12/31/200X Entry to record the purchase of S Company: Investment in S Company Cash Entry in the P Corporation General Ledger to record the purchase of 80% of S Company. Compuation of Goodwill Cash 580,000 Investment in S Co. ENTRIES ON CONSOLIDATION WORKSHEET Consolidation Entry S: Common Stock Paid in Capital Retained Earnings (Beginning) Investment in S Company Noncontrolling interest Eliminate subsidiary equity P Corporation S Company Net Assets at Book Value Inventory Other Assets Plant Liabilities Long Term Debt Net Assets at Book Net Assets at Market Paid $300,000 for 80% Noncontrolling interest 20% Acquisition date fair value Fair Market Value Goodwill 115,000 Controlling interest - 80% Noncontrolling interest - 20% Goodwill 115,000 S Company acquisition date fair value S Company acquisition date book value Fair value in excess of book value Fair value adjustments to: Plant Inventory Amount allocated to goodwill S Company Debit Credit Consolidated Assets Cash Inventories Other Assets Investment in S 115,000 Goodwill Allocation to Controlling and Noncontrolling Interest Total Controlling Fair value at acquisition date Relative fair value of S Company net assets (80% and 20%) Goodwill 115,000 Plant Goodwill Total Assets P Corporation Consolidated Balance Sheet Assets Liabilities and Equity Cash Current Liabilities Inventory Long Term debt Other Assets Noncontrolling Interest Plant Common Stock 5 Par Paid In Capital Goodwill Retained Earnings Total Total 115,000 Noncontrolling Liabilities & Equity Current Liabilities Long Term Debt Noncontrolling Interest 75,000 Noncontrolling Interest 20% of 260,000 + 23,000 goodwill = 75,000 Common Stock $5 par Common Stock $10 par Paid In Capital Retained Earnings Total Liabilities & Equity Consolidation Entry A: Plant Inventory Goodwill Investment in S Company Noncontrolling interest Allocate subsidiary acquisition date fair value adjustments Noncontrolling 75,000 52,000 23,000 TEMPLATE FOR UNIT 4 POST PROBLEM 2 Compute Goodwill as of date of purchase December 31, 2009 Common Stock Paid in capital Retained Earnings 12/31/2009 Market value excess - building Market value excess - equipment Net Assets at market value Net Assets at market purchased by Conglomerate Cash paid by Conglomerate for 90% Conglomerate Goodwill (90%) Total Goodwill (100%) Computation of Goodwill 100,000 300,000 60,000 20,000 20,000 500,000 90% 10% 450,000 50,000 90% 100% Computation of Sub Net Income Applicable to Parent As of December 31, 2010 Sub Sales Sub Cost of Goods Sub Op Expense 90% 36,000 560,000 110,000 12,222 122,222 Building Equipment Building Equipment Analysis of excess amortization for first year ending December 31, 2010 Fair Value Book Value ifferenceAmortize D Net 300,000 280,000 20,000 200,000 180,000 20,000 Life 20 year 10 year 90% Excess Amortization Investment in S 560,000 Cash XXXXXX 560,000 1,440,000 584,300 1,449,000 Equity in Subsidiary Earnings 33,300 Payment of Dividends By Subsidiary Cash 120,000 110,000 Dividend to Parent 9,000 10,000 Dividend to NCI 1,000 JOURNAL ENTRIES Debit Credit 12/31/2009 - On Conglomerate Books Investment in Sub Company Cash To record 90% interest in Sub Company 12/31/2010 - On Conglomerate Books Investment in Sub Company Eqity in sub Earnings To record 90% interest in sub income Cash Investment in Sub Company To record cash dividend paid from 90% owned subsidiary to Parent. Equity In sub earnings Investment in Sub earnings To record 90% of fair value amortizations of sub net assets. Consolidation Entry S Common Stock Additional paid in capial Retained Earnings, 12/31/2009 Investment in Sub Company @ 90% interest NCI Investment in Sub @ 10% interest To eliminate beginning stockholder's equity accounts of the subsidiary along with book value portion of investment. Dividend to NCI Consolidation Entry A Building Equipment Goodwill Investment in Sub Company NCI investment in Sub Company To recognize unamortized excess fair value as of Dec 31, 2010 and to allocate the unamortized fair value to the non controlling interest. Goodwill is attributable proportionately to controlling and noncontrolling interests. Consolidation Entry I Equity in income of Sub Investment in Sub Company To eliminate the impact of intercompany income accrued by Conglomerate. Consolidation Entry D Investment in Sub Dividends Paid To eliminate the impact of intercompany dividend payments made by the subsidiary to parent and NCI. Consolidation Entry E Amortization Expense Building Equipment To recognize excess amortization of fair value adjustments are individually recorded during the current period. Conglomerate and Sub Company Consolidated Worksheet For the year ended Dec. 31, 2010 Accounts Conglomerate INCOME STATEMENT Sales $1,100,000 Cost of Goods Sold 700,000 Operating Expenses 170,000 Amortization Expense 0 Equity in Income of Sub 33,300 Separate Company Net Income $263,300 Consolidated Net Income Non Controlling interest in Sub Income Net Income to Controlling Interest STATEMENT OF RETAINED EARNINGS Retained Earnings, 12/31//2009 $120,000 Net Income 263,300 Dividends Paid 0 Retained Earnings, 12/31/2010 $383,300 Sub $300,000 200,000 60,000 0 0 $40,000 $60,000 40,000 10,000 $90,000 BALANCE SHEET ASSETS Cash Inventories Investment in Sub Company $1,449,000 60,000 584,300 400,000 120,000 0 $2,613,300 280,000 180,000 Credit E I S D $110,000 40,000 Building Equipment Goodwill Total Assets Debit LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Accounts Payable $180,000 D S A I A A A E E $610,000 $120,000 SHAREHOLDER'S EQUITY NCI in Sub Company S A Common Stock 1,800,000 Additional Paid in Capital 250,000 Retained Earnings, 12/31/2009 383,300 Total Liabilities and Shareholder's Equity $2,613,300 Analysis of Non Controlling interest Beginning Sub net assets at book (100,000 + 300,000 + 60,000) x 10% Building excess 20,000 x 10% Equipment excess 20,000 x 10% Goodwill 122,222 x 10% Sub dividends 10,000 x 10% Excess amortization 3,000 x 10% Sub net income 40,000 x 10% 100,000 300,000 90,000 $610,000 S S Analysis of Non Controlling Interest in Subsidiary Net Income Subsidiary net income Excess amortization 10% Non Controlling Interest in subsidiary net income 64,922 3,700 Non Controlling Interest Consolidated Totals Analysis of excess amortization for first year Fair Value Book Value Difference Amortize Net Life 300,000 280,000 20,000 1,000 20 year 200,000 180,000 20,000 2,000 10 year 3,000 2,700 Excess Amortization