Question
On January 1, 2015, P Company acquires 8,000 shares of S Company by issuing 10,000 of its common stock shares with a par value of
On January 1, 2015, P Company acquires 8,000 shares of S Company by issuing 10,000 of its common stock shares with a par value of $10 per share and a fair value of $70 per share. The price paid reflects a control premium. The market value of the shares owned by the NCI is $80 per share. At the time of the purchase, S company has made the following balance sheet:
Assets:
Current assets $100,000
Investments 150,000
Land 120,000
Building (net) 350,000
Equipment (net) 160,000
Total 880,000
Liabilities & Equity:
Current liabilities 80,000
Bonds payable 250,000
Common stock ($10 par) 100,000
Paid-in capital in excess of par 200,000
Retained earnings 250,000
Total liabilities and equity 880,000
Appraisals indicate that the book values are representative of fair values with the exception of the land and building. The land has a fair value of $180,000, and the building is appraised at $450,000. The building has an estimated life of 20 years. Any remaining excess is goodwill.
The following summary of Solvos retained earnings applies to 2015 and 2016:
Balance, January 1, 2015 $250,000
Net income for 2015 60,000
Dividends paid in 2015 (10,000)
Balance, December 31, 2015 $300,000
Net income for 2016 50,000
Dividends paid in 2016 (10,000)
Balance, December 31, 2016 340,000
Prepare a value analysis and a determination and distribution of excess schedule for the investment in S company. As a part of the schedule, indicate annual amortization of excess adjustments.
For 2015 and 2016, prepare the entries P company would make concerning its investment in S company under the simple equity, sophisticated equity, and cost methods. You may want to set up a worksheet so each methods entries could be easily compared .
For 2015 and 2016, prepare the worksheet elimination that would be made on a consolidated worksheet under the simple equity, sophisticated equity and cost methods. Make a similar set-up as done in problem 2 to be able to compare methods.
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