Priya Corporation acquired 100 percent of Sheldon Company stock on January 1, 2019 for $734,000 cash. Following are trial balances of Priya Corporation and Sheldon Company as of December 31, 2019 PRIYA CORPORATION SHELDON COMPANY Debit Credit Debit Credit Cash $ 719,600 $ 211,800 Accounts Receivable 294,000 141,600 Inventory 473,000 I 162,000 Investment in Sheldon Corp. 802,700 Buildings 636,000 346,000 Land 790,000 225,000 Equipment 531,000 247,000 Cost of Goods Sold 382,000 176,000 Depreciation Expense, Building 63,600 16,800 Depreciation Expense, Equipment 53,100 31,200 Selling & Administrative Expense 193,400 115,400 Dividends Declared 60,000 40,000 Accumulated Depreciation, Bldg $ 190,800 $ 117,600 Accumulated Depreciation, Equip 318,600 187,200 Accounts Payable 178,000 165,800 Bonds Payable 500,000 109,200 Common Stock ($1 par) 600,000 210,000 Additional Paid In Capital 1,482,700 175,000 Retained Earnings (01/01/2019) 809,000 264,000 Sales 810,600 484,000 Income from Sheldon Corp. 108,700 $ 4,998,400 $ 4,998,400 $ 1,712,800 $ 1,712,800 53,100 193,400 60,000 115,400 40,000 $ $ Depreciation Expense, Equipment Selling & Administrative Expense Dividends Declared Accumulated Depreciation, Bldg Accumulated Depreciation, Equip Accounts Payable Bonds Payable Common Stock ($1 par) Additional Paid In Capital Retained Earnings (01/01/2019) Sales Income from Sheldon Corp. 190,800 318,600 178,000 500,000 600,000 1,482,700 809,000 810,600 108,700 4,998,400 117,600 187,200 165,800 109,200 210,000 175,000 264,000 484,000 I 1,712,800 $ $ 4,998,400 $ $ 1,712,800 Additional Information: 1. On January 1, 2019 the fair market value of Sheldon's assets equaled their book value with the exception of: Inventory-was undervalued by $21,000 (all of this inventory was sold during 2019). Building - was overvalued by $9,000 (remaining useful life was estimated to be 9 years). Land - was by overvalued $25,000. Equipment - was undervalued by $37,000 (remaining useful life was estimated to be 10 years). The new Goodwill from the acquisition was impaired by $12,200 at year-end. 2. Priya Corporation uses the (full) equity method to account for its Investment in Sheldon Company 3. The general ledger numbers given above (HINT: those in boldface) include the effects of the JOURNAL ENTRIES that were recorded by Priya at the acquisition date and during 2019 to account for its investment in Sheldon Company. These boldface figures should be used a check figures in your solution. 1 Required: (CLEARLY SHOW ALL OF YOUR WORK). a. Analyze the Investment in Sheldon account as of the acquisition date. Determine the total "differential" and then break this amount out into the excess cost detail and (new) goodwill components. (10 POINTS) PLEASE BE SURE TO CLEARLY LABEL YOUR DETAIL FOR THE IDENTIFIABLE EXCESS, INCLUDING THE ASSET NAME AND WHETHER THE ASSET IS UNDERVALUED OR OVERVALUED. Fair Value of Consideration given from Priya Company to Sheldon's Shareholders: Fair Value of Any Noncontrolling Interest $ $ + Total Fair Value Book Value of Sheldon Company's Net Identifiable Assets $ Differential (= Excess Value) $ Identifiable Excess (6 POINTS) NET IDENTIFIABLE EXCESS $ New Goodwill $ b. Recreate the 4 JOURNAL ENTRIES recorded by Priya with regard to its investment in Sheldon Company at January 1, 2019 and during 2019. PLEASE BE SURE TO SHOW YOUR WORK FOR THE NUMBERS INCLUDED IN THE AMORTIZATION OF EXCESS VALUE JOURNAL ENTRY. THAT WORK IS WORTH 4 POINTS. (10 POINTS) EXCESS COST: (OVERVALUED) OR AMORTIZATION THE RELATED ASSET UNDERVALUED LIFE AMOUNT EXPENSE ACCOUNT c. Using your information from b. above, calculate the 12/31/19 balances for Priya Company's Investment in Sheldon and Income from Sheldon accounts. Use the Taccounts provided below. (4 POINTS) Priya Company's General Ledger I Investment in Sheldon Income from Sheldon 2 Priya Corporation acquired 100 percent of Sheldon Company stock on January 1, 2019 for $734,000 cash. Following are trial balances of Priya Corporation and Sheldon Company as of December 31, 2019 PRIYA CORPORATION SHELDON COMPANY Debit Credit Debit Credit Cash $ 719,600 $ 211,800 Accounts Receivable 294,000 141,600 Inventory 473,000 I 162,000 Investment in Sheldon Corp. 802,700 Buildings 636,000 346,000 Land 790,000 225,000 Equipment 531,000 247,000 Cost of Goods Sold 382,000 176,000 Depreciation Expense, Building 63,600 16,800 Depreciation Expense, Equipment 53,100 31,200 Selling & Administrative Expense 193,400 115,400 Dividends Declared 60,000 40,000 Accumulated Depreciation, Bldg $ 190,800 $ 117,600 Accumulated Depreciation, Equip 318,600 187,200 Accounts Payable 178,000 165,800 Bonds Payable 500,000 109,200 Common Stock ($1 par) 600,000 210,000 Additional Paid In Capital 1,482,700 175,000 Retained Earnings (01/01/2019) 809,000 264,000 Sales 810,600 484,000 Income from Sheldon Corp. 108,700 $ 4,998,400 $ 4,998,400 $ 1,712,800 $ 1,712,800 53,100 193,400 60,000 115,400 40,000 $ $ Depreciation Expense, Equipment Selling & Administrative Expense Dividends Declared Accumulated Depreciation, Bldg Accumulated Depreciation, Equip Accounts Payable Bonds Payable Common Stock ($1 par) Additional Paid In Capital Retained Earnings (01/01/2019) Sales Income from Sheldon Corp. 190,800 318,600 178,000 500,000 600,000 1,482,700 809,000 810,600 108,700 4,998,400 117,600 187,200 165,800 109,200 210,000 175,000 264,000 484,000 I 1,712,800 $ $ 4,998,400 $ $ 1,712,800 Additional Information: 1. On January 1, 2019 the fair market value of Sheldon's assets equaled their book value with the exception of: Inventory-was undervalued by $21,000 (all of this inventory was sold during 2019). Building - was overvalued by $9,000 (remaining useful life was estimated to be 9 years). Land - was by overvalued $25,000. Equipment - was undervalued by $37,000 (remaining useful life was estimated to be 10 years). The new Goodwill from the acquisition was impaired by $12,200 at year-end. 2. Priya Corporation uses the (full) equity method to account for its Investment in Sheldon Company 3. The general ledger numbers given above (HINT: those in boldface) include the effects of the JOURNAL ENTRIES that were recorded by Priya at the acquisition date and during 2019 to account for its investment in Sheldon Company. These boldface figures should be used a check figures in your solution. 1 Required: (CLEARLY SHOW ALL OF YOUR WORK). a. Analyze the Investment in Sheldon account as of the acquisition date. Determine the total "differential" and then break this amount out into the excess cost detail and (new) goodwill components. (10 POINTS) PLEASE BE SURE TO CLEARLY LABEL YOUR DETAIL FOR THE IDENTIFIABLE EXCESS, INCLUDING THE ASSET NAME AND WHETHER THE ASSET IS UNDERVALUED OR OVERVALUED. Fair Value of Consideration given from Priya Company to Sheldon's Shareholders: Fair Value of Any Noncontrolling Interest $ $ + Total Fair Value Book Value of Sheldon Company's Net Identifiable Assets $ Differential (= Excess Value) $ Identifiable Excess (6 POINTS) NET IDENTIFIABLE EXCESS $ New Goodwill $ b. Recreate the 4 JOURNAL ENTRIES recorded by Priya with regard to its investment in Sheldon Company at January 1, 2019 and during 2019. PLEASE BE SURE TO SHOW YOUR WORK FOR THE NUMBERS INCLUDED IN THE AMORTIZATION OF EXCESS VALUE JOURNAL ENTRY. THAT WORK IS WORTH 4 POINTS. (10 POINTS) EXCESS COST: (OVERVALUED) OR AMORTIZATION THE RELATED ASSET UNDERVALUED LIFE AMOUNT EXPENSE ACCOUNT c. Using your information from b. above, calculate the 12/31/19 balances for Priya Company's Investment in Sheldon and Income from Sheldon accounts. Use the Taccounts provided below. (4 POINTS) Priya Company's General Ledger I Investment in Sheldon Income from Sheldon 2