Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This is all the information given, and all the information needed Parent Company acquired 100 percent of Subsidiary's outstanding stock for $6,162,500 cash on January

image text in transcribed

image text in transcribed

image text in transcribed

This is all the information given, and all the information needed

Parent Company acquired 100 percent of Subsidiary's outstanding stock for $6,162,500 cash on January 1, 2019. At the date of acquisition, Subsidiary's balance sheet was as follows: Cash Receivables Inventory Land Equipment (net) Software Liabilities Common Stock Retained Earnings 157,250 348,500 633,250 382,500 956,250 1,338,750 (1,793,500) (1,487,500) (535,500) Certain assets and liabilities had fair values that differed from their book values. The fair values of these were as follows (note: this is not the difference between fair value and book value; this is the fair value): Land 340,000 Brand Name (indefinite life) 255,000 Software (2 year life) 1,763,750 IP R&D (10 year life) 1,275,000 Other relevant information: Parent's 1/1/2020 retained earnings balance (excluding the effect of any 2019 subsidiary transactions/income) was $3,952,500. The subsidiary had net income of $318,750 and paid no dividends in 2019. There are no intercompany payables/receivables between Parent and Subsidiary. The companies' 12/31/2020 trial balances are as follows: . . Parent (4,471,000) 3,489,250 Revenues Operating Expenses Income of Subsidiary Net Income Subsidiary (1,814,750) 1,113,500 ? (701,250) ? Retained Earnings - Parent, 1/1/2020 Retained Earnings - Subsidiary, 1/1/2020 Net Income (above) Dividends Declared Retained Earnings, 12/31/2020 ? 850,000 (854,250) (701,250) 148,750 (1,406,750) 403,750 607,750 837,250 Cash Receivables Inventory Investment in Subsidiary Co. Land Equipment (net) Software Other Intangibles Goodwill Total Assets 828,750 1,049,750 1,763,750 ? 1,449,250 1,020,425 361,250 425,000 1,326,000 616,250 ? 3,961,000 Liabilities Common Stock Retained Earnings (above) Total liabilities and equity (6,532,675) (2,125,000) ? ? (1,066,750) (1,487,500) (1,406,750) (3,961,000) Fair Value Allocation Schedule Price Paid Book Value Excess Initial Value to land to brand name to software to IPR&D to goodwill 6,162,500 (2,023,000) 4,139,500 (42,500) 255,000 425,000 1,275,000 2,227,000 Amortization 2019 2020 ? ? ? ? ? ? ? ? ? ? Required: Prepare an Excel workbook to consolidate Parent and Subsidiary's financial statements for 2020. The workbook should contain the following: Tab 1: The information contained on the previous page of these instructions, with the fair value allocation schedule completed. Tab 2: Calculation of the 12/31/2020 balance of the Investment in Subsidiary account (on Parent's books) using (1) the equity method, (2) the partial equity method, and (3) the initial value method. Also calculate Parent's 1/1/2020 retained earnings using each of these methods. Tab 2: A listing of all consolidation entries necessary under each of the respective methods (equity, partial equity, and initial value). Tab 3: Full Consolidation worksheet using the equity method. Tab 4: Full Consolidation worksheet using the partial equity method. Tab 5: Full Consolidation worksheet using the initial value method. Parent Company acquired 100 percent of Subsidiary's outstanding stock for $6,162,500 cash on January 1, 2019. At the date of acquisition, Subsidiary's balance sheet was as follows: Cash Receivables Inventory Land Equipment (net) Software Liabilities Common Stock Retained Earnings 157,250 348,500 633,250 382,500 956,250 1,338,750 (1,793,500) (1,487,500) (535,500) Certain assets and liabilities had fair values that differed from their book values. The fair values of these were as follows (note: this is not the difference between fair value and book value; this is the fair value): Land 340,000 Brand Name (indefinite life) 255,000 Software (2 year life) 1,763,750 IP R&D (10 year life) 1,275,000 Other relevant information: Parent's 1/1/2020 retained earnings balance (excluding the effect of any 2019 subsidiary transactions/income) was $3,952,500. The subsidiary had net income of $318,750 and paid no dividends in 2019. There are no intercompany payables/receivables between Parent and Subsidiary. The companies' 12/31/2020 trial balances are as follows: . . Parent (4,471,000) 3,489,250 Revenues Operating Expenses Income of Subsidiary Net Income Subsidiary (1,814,750) 1,113,500 ? (701,250) ? Retained Earnings - Parent, 1/1/2020 Retained Earnings - Subsidiary, 1/1/2020 Net Income (above) Dividends Declared Retained Earnings, 12/31/2020 ? 850,000 (854,250) (701,250) 148,750 (1,406,750) 403,750 607,750 837,250 Cash Receivables Inventory Investment in Subsidiary Co. Land Equipment (net) Software Other Intangibles Goodwill Total Assets 828,750 1,049,750 1,763,750 ? 1,449,250 1,020,425 361,250 425,000 1,326,000 616,250 ? 3,961,000 Liabilities Common Stock Retained Earnings (above) Total liabilities and equity (6,532,675) (2,125,000) ? ? (1,066,750) (1,487,500) (1,406,750) (3,961,000) Fair Value Allocation Schedule Price Paid Book Value Excess Initial Value to land to brand name to software to IPR&D to goodwill 6,162,500 (2,023,000) 4,139,500 (42,500) 255,000 425,000 1,275,000 2,227,000 Amortization 2019 2020 ? ? ? ? ? ? ? ? ? ? Required: Prepare an Excel workbook to consolidate Parent and Subsidiary's financial statements for 2020. The workbook should contain the following: Tab 1: The information contained on the previous page of these instructions, with the fair value allocation schedule completed. Tab 2: Calculation of the 12/31/2020 balance of the Investment in Subsidiary account (on Parent's books) using (1) the equity method, (2) the partial equity method, and (3) the initial value method. Also calculate Parent's 1/1/2020 retained earnings using each of these methods. Tab 2: A listing of all consolidation entries necessary under each of the respective methods (equity, partial equity, and initial value). Tab 3: Full Consolidation worksheet using the equity method. Tab 4: Full Consolidation worksheet using the partial equity method. Tab 5: Full Consolidation worksheet using the initial value method

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

Economics Of Accounting Information In Markets

Authors: Peter Ove Christensen, Gerald Feltham

2nd Edition

1402072295, 9781402072291

More Books

Students also viewed these Accounting questions