Practice Problem On January 1, 2014, Plant Company purchased 80% of the common stock of Sun Company for $775,000. Sun reported the following: Income Dividends 2014 $350,000 $45,000 2015 2016 $360,000 $325,000 $55,000 $65,000 On December 31, 2013, just prior to the acquisition, the balance sheets of Plant Company and Sun Company were as follows: Cash Accounts receivable (net) Inventory Land Liabilities Common stock Additional paid in capital Retained earnings Required: Sun Sun Plant $1,650,000 (Book) $515,000 $515,000 400,000 190,000 190,000 (Market) 600,000 125,000 900,000 $3,550,000 100,000 $930,000 $980,000 125,000 150,000 $0 $200,000 $230,000 500,000 300,000 250,000 100,000 2,800,000 330,000 $3,550,000 $930,000 1. Assume that Plant accounts for the acquisition using the Equity method. Use the information above as well as the incomplete worksheet information presented on the following pages to consolidate the financial statements for Plant and Sun for 2014, 2015 & 2016. In working the consolidations, please provide the following information: 1. The Equity method entries that Plant would make each year 2. The Allocation Schedule to allocate excess fair values 3. The consolidation entries 4. The Completed worksheets showing the consolidated totals 2. Assume that Plant accounts for the acquisition using the Initial Value method (i.e., the Cost method). Use the information above as well as the appropriate incomplete worksheet information to consolidate the financial statements for Plant and Sun for 2014, 2015 and 2016. Please provide all the same information as #1 above. Pre-consolidation Worksheet 12/31/2014 INCOME STATEMENT Net sales Cost of sales Other expenses Equity Income Consolidated NI To NCI To Controlling Interest STATEMENT OF RETAINED EARNINGS Retained earnings, 1/1/2014 NI Divs End RE Trial Balances Plant Sun DR CR Totals 800,000 650,000 1,450,000 410,000 250,000 660,000 215,000 280,000 50,000 265,000 BV of net assets acquired 280,000 Excess FV over BV 455,000 350,000 525,000 56,000 (56,000) Inventory 469,000 Land Goodwill FV Allocation Schedule FV of NCI Acquisition date FV Consideration Transferred (80%) 775,000 207,000 982,000 750,000 232,000 Liabilities (200,000) 125,000 100,000 257,000 S-Stockholder's Equity 2,800,000 330,000 330,000 2,800,000 455,000 350,000 50,000 3,205,000 45,000 45,000 635,000 469,000 50,000 3,219,000 CS Beg. RE Equity Inv. BALANCE SHEET NCI Equity Cash 1,433,000 735,000 2,168,000 Accounts receivable net 425,000 230,000 655,000 A-Allocations Inventory 800,000 270,000 1,070,000 Land 900,000 100,000 1,000,000 Goodwill Equity Investment 1,019,000 1,019,000 300,000 330,000 504,000 126,000 I-Income Elimination Total Assets 4,577,000 1,335,000 5,912,000 Equity Income 280,000 Liabilities Common stock Other paid in capital Retained Earnings NCI-Equity 622,000 300,000 500,000 300,000 250,000 100,000 3,205,000 922,000 Equity Inv. 280,000 800,000 NCI Income 56,000 350,000 NCI Equity 56,000 635,000 3,840,000 D-Dividend Elimination Equity Inv. 36,000 NCI Equity 9,000 Dividends 45,000 Total L +E 4,577,000 1,335,000 5,912,000 E-Expense Allocation