Unit 2. See Attached Document
Unit 2: Consolidated Statements-Date of Acquisition Understanding the Issues 1. Jacobson Company is considering an investment in the common stock Biltrite Company. What are the accounting issues surrounding the recording of income in the future periods if Jacobson purchases: a. b. c. d. 15% of Biltrite's outstanding shares 40% of Biltrite's outstanding shares 100% of Biltrite's outstanding shares 80% of Biltrite's outstanding shares Exercise 4. Wood'n Wares, Inc. purchased all the outstanding stock of Pail, Inc., for $950,000. Wood'n Wares also paid $10,000 in direct acquisition costs. Just before the investment, the two companies had the following balance sheets: Assets Accounts Receivable Inventory Depreciable fixed assets (net) Total Assets Wood'n Wares, Inc. $900,000 $600,000 $1,500,000 $3,000,000 Pail, Inc. $500,000 $200,000 $600,000 $1,300,000 Liabilities Current Liabilities Bonds Payable Common Stock ($10 par) Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity Wood'n Wares, Inc. $950,000 $500,000 $400,000 $500,000 $650,000 $3,000,000 Pail, Inc. $400,000 $200,000 $300,000 $380,000 $20,000 $1,300,000 Problems 2. Assume that Raabe Company exchanged $14,000 of its $40 fair value ($1 par value) shares for 16,000 of the outstanding shares of Dalke Company. The two companies had the following balance sheets on July 1, 2016: Assets Other Current Assets Inventory Land Building (net) Equipment (net) Total Assets Raabe $50,000 $120,000 $100,000 $300,000 $430,000 $1,000,000 Dalke $70,000 $60,000 $40,000 $120,000 $110,000 $400,000 Liabilities and Equity Current Liabilities Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity Raabe $180,000 $40,000 $360,000 $420,000 $1,000,000 Dalke $60,000 $20,000 $180,000 $140,000 $400,000 1. Record the investment in Dalke Company and any other purchase-related entry. 2. Prepare the value analysis schedule and the determination and distribution of excess schedule. 3. Prepare a consolidated balance sheet for July 1, 2016, immediately subsequent to the purchase 3. On March 1, 2016, Carlson Enterprises purchases a 100% interest in Entro Corporation for $400,000. Entro Corporation has the following balance sheet on February 28, 2015: Assets Accounts Receivable Inventory Land Buildings Accumulated Depr. - Bldg. Equipment Accumulated Depr. - Equip. Total Assets $60,000 $80,000 $40,000 $300,000 ($120,000) $220,000 ($60,000) $520,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($5 par) Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity $50,000 $100,000 $50,000 $250,000 $70,000 $520,000 Carlson Enterprises receives an independent appraisal on the fair values of Entro Corporation's assets and liabilities. The controller has reviewed the following figures and accepts them as reasonable: Accounts Receivable Inventory Land Building Equipment Current Liabilities Bonds Payable $60,000 $100,000 $40,500 $202,500 $162,000 $50,000 $95,000 Record the investment in Entro Corporation, prepare the value analysis and the determination and distribution of excess schedule, prepare the elimination entries that would be made on a consolidated worksheet prepared on the date of acquisition. 4. On March 1, 2015, Penson Enterprises purchases an 80% interest in Express Corporation for $320,000 cash. Express Corporation has the following balance sheet on February 28, 2015: Assets Accounts Receivable Inventory Land Buildings Accumulated Depr. - Bldg. Equipment Accumulated Depr. - Equip. Total Assets $60,000 $80,000 $40,000 $300,000 ($120,000) $220,000 ($60,000) $520,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($10 par) Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity $50,000 $100,000 $50,000 $250,000 $70,000 $520,000 Penson Enterprises receives an independent appraisal on the fair values of Express Corporation's assets and liabilities. The controller has reviewed the following figures and accepts them as reasonable: Accounts Receivable Inventory $60,000 $100,000 Land Building Equipment Current Liabilities Bonds Payable $50,000 $200,000 $162,000 $50,000 $95,000 Record the investment in Express Corporation, prepare the value analysis and the determination and distribution of excess schedule, prepare the elimination entries that would be made on a consolidated worksheet prepared on the date of acquisition. 5. On March 1, 2015, Collier Enterprises purchases a 100% interest in Robby Corporation for $480,000 cash. Robby Corporation applies push-down accounting principles to account for this acquisition. Robby Corporation has the following balance sheet as of February 28, 2015: Assets Accounts Receivable Inventory Land Buildings Accumulated Depr. - Bldg. Equipment Accumulated Depr. - Equip. Total Assets $60,000 $80,000 $40,000 $300,000 ($120,000) $220,000 ($60,000) $520,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($5 par) Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity $50,000 $100,000 $50,000 $250,000 $70,000 $520,000 Collier Enterprises receives an independent appraisal on the fair values of Robby Corporation's assets and liabilities. The controller has reviewed the following figures and accepts them as reasonable: Accounts Receivable Inventory Land Building Equipment Current Liabilities Bonds Payable $60,000 $100,000 $55,000 $200,000 $150,000 $50,000 $98,000 Record the investment in Robby Corporation, prepare the value analysis and the determination and distribution of excess schedule, give the Robby Corporation's adjusting entry. 6. On December 31, 2011, Adam Company purchases 100% of the common stock of Sampson Company for $475,000 cash. On this date, any excess of cost over book value is attributed to accounts with fait values that differ from book values. The accounts of Sampson Company have the following fair values: Cash Accounts Receivable Inventory Land Buildings & Equipment Copyrights Current Liabilities Bonds Payable $40,000 $30,000 $140,000 $45,000 $225,000 $25,000 $65,000 $105,000 The following comparative balance sheets are prepared for the two companies immediately after the purchase: Cash Accounts Receivable Inventory Investment in Sampson Co. Land Buildings & Equipment Accumulated Depreciation Copyrights Total Assets Current Liabilities Bonds Payable Common Stock ($10 par)-Adam Common Stock ($5 par)-Sampson Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity Adam $160,000 $70,000 $130,000 $475,000 $50,000 $350,000 ($100,000) $40,000 $1,175,000 $192,000 Sampson $40,000 $30,000 $120,000 $35,000 $230,000 ($50,000) $10,000 $415,000 $65,000 $100,000 $100,000 $250,000 $633,000 $1,175,000 $50,000 $70,000 $130,000 $415,000 1. Prepare the value analysis schedule and determination and distribution of excess schedule for the investment in Sampson Company. 2. Complete a consolidated worksheet for Adam Company and its subsidiary Sampson Company as of December 31, 2011 7. Using the date in Problem 6, assume that Adam Company purchases 80% of the common stock of Sampson Company for $380,000 cash. The following comparative balance sheets are prepared for the two companies immediately after the purchase Cash Accounts Receivable Inventory Investment in Sampson Co. Land Buildings & Equipment Accumulated Depreciation Copyrights Total Assets Current Liabilities Bonds Payable Common Stock ($10 par)-Adam Common Stock ($5 par)-Sampson Paid-in capital in excess of par Retained Earnings Total Liabilities and Equity Adam $255,000 $70,000 $130,000 $380,000 $50,000 $350,000 ($100,000) $40,000 $1,175,000 $192,000 Sampson $40,000 $30,000 $120,000 $35,000 $230,000 ($50,000) $10,000 $415,000 $65,000 $100,000 $100,000 $250,000 $633,000 $1,175,000 $50,000 $70,000 $130,000 $415,000 1. Prepare the value analysis schedule and determination and distribution of excess schedule 2. for the investment in Sampson Company. Complete a consolidated worksheet for Adam Company and its subsidiary Sampson Company as of December 31, 2011 Use the following information for Problems 8 - 11: In an attempt to expand its operations, Palto Company acquired Saleen Company on January 1, 2011. Palto pays cash in exchange for the common stock of Saleen. On the date of acquisition, Saleen has the following balance sheet: Assets Liabilities and Equity Accounts Receivable Inventory Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Total Assets $20,000 $50,000 $40,000 $200,000 ($50,000) $60,000 ($20,000) $300,000 Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities & Equity $40,000 $100,000 $10,000 $90,000 $60,000 $300,000 An appraisal provides the following fair values for assets: Accounts Receivable Inventory Land Buildings Equipment Copyright $20,000 $60,000 $80,000 $320,000 $60,000 $50,000 8. Use the preceding information for Palto's purchase of Saleen common stock. Assume Palto purchases 100% of the Saleen common stock for $500,000 cash. Palto has the following balance sheet immediately after the purchase: Assets Cash Accounts Receivable Inventory Investment in Saleen Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Total Assets $61,000 $65,000 $80,000 $500,000 $100,000 $250,000 ($80,000) $90,000 ($40,000) $1,026,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities & Equity $80,000 $200,000 $20,000 $180,000 $546,000 $1,026,000 1. Prepare the value analysis schedule and the determination and distribution of excess schedule for the investment in Saleen. 2. Complete a consolidated worksheet for Palto Company and its subsidiary Saleen Company as of January 1, 2011. 9. Use the preceding information for Palto's purchase of Saleen common stock. Assume Palto purchases 100% of the Saleen common stock for $400,000 cash. Palto has the following balance sheet immediately after the purchase: Assets Cash Accounts Receivable Inventory Investment in Saleen Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Total Assets $161,000 $65,000 $80,000 $400,000 $100,000 $250,000 ($80,000) $90,000 ($40,000) $1,026,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities & Equity $80,000 $200,000 $20,000 $180,000 $546,000 $1,026,000 1. Prepare the value analysis schedule and the determination and distribution of excess 2. schedule for the investment in Saleen. Complete a consolidated worksheet for Palto Company and its subsidiary Saleen Company as of January 1, 2011. 10. Use the preceding information for Palto's purchase of Saleen common stock. Assume Palto purchases 80% of the Saleen common stock for $400,000 cash. The shares of the noncontrolling interest have a fair value of $46 each. Palto has the following balance sheet immediately after the purchase: Assets Cash Accounts Receivable Inventory Investment in Saleen Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Total Assets $161,000 $65,000 $80,000 $400,000 $100,000 $250,000 ($80,000) $90,000 ($40,000) $1,026,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities & Equity $80,000 $200,000 $20,000 $180,000 $546,000 $1,026,000 1. Prepare the value analysis schedule and the determination and distribution of excess 2. schedule for the investment in Saleen. Complete a consolidated worksheet for Palto Company and its subsidiary Saleen Company as of January 1, 2011. 11. Use the preceding information for Palto's purchase of Saleen common stock. Assume Palto purchases 80% of the Saleen common stock for $300,000 cash. Palto has the following balance sheet immediately after the purchase: Assets Cash Accounts Receivable Inventory Investment in Saleen Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Total Assets $261,000 $65,000 $80,000 $300,000 $100,000 $250,000 ($80,000) $90,000 ($40,000) $1,026,000 Liabilities and Equity Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities & Equity $80,000 $200,000 $20,000 $180,000 $546,000 $1,026,000 1. Prepare the value analysis schedule and the determination and distribution of excess 2. schedule for the investment in Saleen. Complete a consolidated worksheet for Palto Company and its subsidiary Saleen Company as of January 1, 2011. Use the following information for Problems 12 - 14: Purnell Corporation acquires Sentinel Corporation on December 31, 2011. Sentinel has the following balance sheet on the date of acquisition: Assets Accounts Receivable $50,000 Liabilities and Equity Current Liabilities $90,000 Inventory Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Patent Goodwill Total Assets $120,000 $100,000 $300,000 ($100,000) $140,000 ($50,000) $10,000 $60,000 $630,000 Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total Liabilities & Equity $200,000 $10,000 $190,000 $140,000 $630,000 12. Use the preceding information for Purnell's purchase of Sentinel common stock. Assume Purnell exchanges 22,000 shares of its own stock for 100% of the common stock of Sentinel. The stock has a market value of $50 per share and a par value of $1. Purnell has the following trial balance immediately after the purchase: Cash Accounts Receivable Inventory Investment in Sentinel Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total $20,000 $300,000 $410,000 $1,100,000 $800,000 $2,800,000 ($500,000) $600,000 ($230,000) ($150,000) ($300,000) ($95,000) ($3,655,000) ($1,100,000) $0 1. Prepare the value analysis schedule and the determination and distribution of excess schedule for the investment in Sentinel. 2. Complete a consolidated worksheet for Purnell Corporation and its subsidiary Sentinel Corporation as of December 31, 2011. 13. Use the preceding information for Purnell's purchase of Sentinel common stock. Assume Purnell exchanges 16,000 shares of its own stock for 100% of the common stock of Sentinel. The stock has a market value of $50 per share and a par value of $1. Purnell has the following trial balance immediately after the purchase: Cash Accounts Receivable Inventory Investment in Sentinel Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings $20,000 $300,000 $410,000 $800,000 $800,000 $2,800,000 ($500,000) $600,000 ($230,000) ($150,000) ($300,000) ($89,000) ($3,361,000) ($1,100,000) Total $0 1. Prepare the value analysis schedule and the determination and distribution of excess schedule for the investment in Sentinel. 2. Complete a consolidated worksheet for Purnell Corporation and its subsidiary Sentinel Corporation as of December 31, 2011. 14. Use the preceding information for Purnell's purchase of Sentinel common stock. Assume Purnell exchanges 19,000 shares of its own stock for 80% of the common stock of Sentinel. The stock has a market value of $50 per share and a par value of $1. Purnell has the following trial balance immediately after the purchase: Cash Accounts Receivable Inventory Investment in Sentinel Land Buildings Accumulated Depr-Bldgs Equipment Accumulated Depr-Equip Current Liabilities Bonds Payable Common Stock ($1 par) Paid-in capital in excess of par Retained Earnings Total $20,000 $300,000 $410,000 $950,000 $800,000 $2,800,000 ($500,000) $600,000 ($230,000) ($150,000) ($300,000) ($92,000) ($3,508,000) ($1,100,000) $0 1. Prepare the value analysis schedule and the determination and distribution of excess schedule for the investment in Sentinel. 2. Complete a consolidated worksheet for Purnell Corporation and its subsidiary Sentinel Corporation as of December 31, 2011. Cases 1. Consolidating a Bargain Purchase. Your client, Great Value Hardware Stores, has come to you for assistance in evaluating an opportunity to purchase a controlling interest in a hardware store in a neighboring city. The store under consideration is a closed held family corporation. Owners of 60% of the shares are willing to sell you the 60% interest, 30,000 common stock shares in exchange for 7,5000 of Great Value shares, which have a fair value of $40 each and a par value of $10 each. Your client sees this as a good opportunity to enter a new market. The controller of Great Value knows, however, that all is not well with the store being considered. The store, Al's Hardware, has not kept paced with the market and has been losing money. It also has a major lawsuit against it stemming from alleged faulty electrical components it supplied that caused a fire. The store is not insured for the loss. Legal counsel advises that the store will likely pay $300,000 in damages. The following balance sheet was provided by Al's Hardware as of December 31, 2011: Assets Cash Accounts Receivable Inventory Land Building $180,000 $460,000 $730,000 $120,000 $630,000 Liabilities and Equity Current Liabilities 8% Mortgage Payable Common Stock ($5 par) Paid-in capital in excess of par Retained Earnings $425,000 $600,000 $250,000 $750,000 ($80,000) Accumulated Depr-Bldg Equipment Accumulated Depr-Equip Goodwill Total Assets ($400,000) $135,000 ($85,000) $175,000 $1,945,000 Total Liabilities & Equity $1,945,000 Your analysis raises substantial concern about the values shown. You have gathered the following information: Aging of the accounts receivable reveals a net realizable value of $350,000 The inventory has many obsolete items, fair value is $600,000 Appraisals for long-lived assets are as follows: Land Building Equipment $100,000 $300,000 $100,000 The goodwill resulted from the purchase of another hardware store that has since been consolidated into the existing location. The goodwill was attributed to customer loyalty Liabilities are fairly stated except that there should be a provision for the estimated loss on the lawsuit On the basis of your research, you are convinced that the statements of Al's Hardware are not representative and need major restatement. Your client is not interested in being associated with statements that are not accurate. Your client asks you to make recommendations on two concerns: 1. Does the price asked seem to be a real bargain? Consider the fair value of the entire equity of Al's Hardware; then decide if the price is reasonable for a 60% interest. 2. If the deal were completed, what accounting methods would you recommend either on the books of Al's Hardware or in the consolidation process? Al's Hardware would remain a separate legal entity with a substantial noncontrolling interest
