Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Parent Company acquires 80% of the outstanding stock of Subsidiary Company on the open market. They acquired the 8,000 shares by exchanging 2 shares of

Parent Company acquires 80% of the outstanding stock of Subsidiary Company on the open market. They acquired the 8,000 shares by exchanging 2 shares of Parent for each share of Sub. The Parent stock is selling for $40 per share. At the date of acquisition (12-31-2013) Subsidiary had the following condensed balance sheet: (amounts shown at carrying value)

Inventory = $50,000

Other Current Assets = 60,000

Land = $50,000

Building = $500,000

Accumulated Depreciation on Building = 120,000

Equipment = 300,000

Accumulated Depreciation on Equipment = 90,000

Patent = $0 as it was developed internally.

Liabilities = $210,000

Common Stock (10,000 shares $10 par) = 100,000

PIC- Common Stock = 120,000

Retained Earnings = 320,000

Identifiable assets undervalued:

Inventory by $10,000- FIFO; Land $20,000- Building $30,000 (straight line 20 years life- Equipment $20,000 (straight line 5 years) and Patent $10,000 (straight line 10 years life)

Implied value of firm = (8,000 shares x 2 = 16,000 shares of parent x $40) = 640,000 / .8 = 800,000

Book value of net asses = 540,000

Excess of cost over book value = 260,000

Identifiable assets, inventory 10,000 + land 20,000 + building 30,000 + equipment 20,000 + patent 10,000 explained

Balance is goodwill = 260,000 90,000 = 170,000

What is the original balance in the non-controlling interest?

What is the implied value of the Sub?

The next year the Sub reported Income of $200,000. Dividends of $50,000 were paid to all stockholders. What is the adjusted income of the Sub?

What is the balance in the Investment in Sub balance at the end of the year?

What will be the total adjustments needed to the reported income of the sub in the second year?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Government Auditing Standards 2011 Revision

Authors: U. S. Government Accountability Office, Comptroller General Of The United States

1st Edition

1482311372, 978-1482311372

More Books

Students also viewed these Accounting questions

Question

What is the preferred personality?

Answered: 1 week ago