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On January 1, 2012 Paris Inc. purchased 80% of the outstanding common stock of Torres Co. for $144,000. On that date, the fair value of

On January 1, 2012 Paris Inc. purchased 80% of the outstanding common stock of Torres Co. for $144,000. On that date, the fair value of the remaining 20% interest was $35,000 and Torres had Common Stock of $104,000 and Retained Earnings of $11,000. On the acquisition date all of Torress assets and liabilities had fair values equal to their book values except:

Accounts Receivable which had a book value of $25,000 and a fair value of $20,000.

PP&E which had a book value of $40,000 and a fair value of $70,000.

Patents which were undervalued by $24,000.

Notes Payable which had a book value of $11,000 and a fair value of $16,000.

Both the PP&E and Patent are straight line depreciated or amortized over their expected remaining useful lives of 10 and 6 years respectively. Neither has any salvage value. Torress Notes Payable had a remaining term of 5 years at the date of acquisition.

On January 1, 2013, Torres sold equipment with a book value of $40,000 to Paris for $60,000. Both companies use straight line depreciation and estimate the equipment has a remaining useful life of eight years with no salvage value.

Both companies routinely sell inventory to one another with a profit margin of 30% of the selling price. $22,000 of intercompany sales occurred in 2014, with $10,000 of the merchandise remaining in the ending inventory of Paris. $6,400 of the intercompany sales remained unpaid at the end of 2014. $16,000 of intercompany sales took place in 2015. The 2015 ending inventory of Torres included $5,500 of intercompany goods, $2,560 of which had yet to be paid.

During 2015, Paris took a $2,000 impairment loss on the goodwill recognized as part of the acquisition of Torres.

Answer the following questions. The consolidated statement worksheet should be presented as an Excel printout.

How much goodwill will be attributed to Paris? How much to the non-controlling shareholders? Did Paris pay a control premium, and if so how much?

Write all the 2015 equity method journal entries that Paris makes for its internal books. Identify what each entry is for.

Directly calculate the Equity Investment balance at the beginning of 2015. Show your work.

Write all the necessary 2015 consolidating entries necessary to generate the firms consolidated financial statements.

Write the I entries Paris must make for the equipment purchase in 2013?

Complete Pariss 2015 consolidated statements.

Paris uses the full equity method for its internal bookkeeping. The following information is taken from the unconsolidated December 31st, 2015 financial statements of the two companies:

Parent

Sub

Income Statement

Sales

368,000

160,000

Cost of Goods Sold

(192,000)

(94,400)

Gross Profit

176,000

65,600

Depreciation & Amort Expense

(9,600)

(7,680)

Operating Expenses

(104,000)

(21,040)

Interest Expense

(4,800)

(1,680)

Total Expense

(118,400)

(30,400)

Equity Income

24,430

Net Income

82,030

35,200

NC Income

Controlling Income

Statement of Retained Earnings

Beg. Retained Earnings

211,440

88,000

Net Income

82,030

35,200

Dividends Declared

(48,000)

(16,000)

Ending Retained Earnings

245,470

107,200

Balance Sheet

Cash

34,640

12,000

Accounts Receivable

43,200

38,400

Inventory

104,000

36,800

Investment in Sub

192,430

PPE, net

100,800

88,000

Other Assets

45,600

80,000

Patent

8,000

Goodwill

Total Assets

520,670

263,200

Liabilities & Equity

Accounts Payable

25,600

14,400

Notes Payable

40,000

16,800

Other Liabilities

17,600

20,800

Common Stock

192,000

104,000

Retained Earnings

245,470

107,200

NC Interest

Total Liabilities & Equity

520,670

263,200

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