157 50425 EY427 2013 4 2 1 Fischer11e SMChap02 Final PDF

CHAPTER 2
UNDERSTANDING THE ISSUES

1. (a) Jacobson has a passive level of ownership and in future periods will record
dividend income of only 15% of Biltrites declared dividends. Jacobson will
also have to adjust the investment to
market value at the end of each period.
(b) Jacobson has an influential level of
ownership and in future periods will
record investment income of 40% of
Biltrites net income. Any dividends
declared by Biltrite will reduce the investment account but will not affect the
investment income amount.
(c) Jacobson has a controlling level of
ownership and in future periods will add
100% of Biltrites net income to its own
net income. Biltrites nominal account
balances will be added to Jacobsons
nominal accounts. Any dividends declared by Biltrite will not affect Jacobsons income.
(d) Jacobson has a controlling level of

ownership and in future periods will add
100% of Biltrites net income to its own
net income. All (100%) of Biltrites nominal account balances will be added to
Jacobsons nominal account balances.
This will result in consolidated net income, followed by a distribution to the
noncontrolling interest equal to 20% of
Biltrites income. Any dividends declared by Biltrite will not affect Jacobsons income.
2. The elimination process serves to make the
consolidated financial statements appear
as though the parent had purchased the
net assets of the subsidiary. The investment account and the subsidiary equity accounts are eliminated and replaced by the
subsidiarys net assets.
3. (a)
Value Analysis Schedule
Company fair value ......................................
Fair value of net assets excluding goodwill .
Goodwill .......................................................
Company
Implied
Fair Value
$1,200,000
800,000
$ 400,000
Parent
Price
(100%)
$1,200,000
800,000
$ 400,000
NCI
Value
(0%)
N/A
Net Assetsmarked up 300,000 ($800,000 fair value $500,000 book value)

Goodwill$400,000 ($1,200,000 $800,000)
(b)
Goodwill .......................................................
Company
Implied
Fair Value
$1,200,000
800,000
$ 400,000
Parent
Price
(80%)
$960,000
640,000
$320,000
NCI
Value
(20%)
$240,000
160,000
$ 80,000
Net Assetsmarked up $300,000 ($800,000 fair value $500,000 book value)

Goodwill$400,000 ($1,200,000 $800,000)
The NCI would be valued at $240,000 (20% of the implied company value) to allow the full recognition of fair values.
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31
4. (a)
Goodwill .......................................................
Company
Implied
Fair Value
$1,000,000
850,000
$ 150,000
Parent
Price
(100%)
$1,000,000
850,000
$ 150,000
NCI
Value
(0%)
N/A
The determination and distribution of excess schedule would make the following adjustments:
$1,000,000 price $350,000 net book value = $650,000 excess to be allocated as follows:
Current assets .............................................
$ 50,000
Fixed assets ................................................
450,000
Goodwill .......................................................
150,000
$650,000
(b)
Gain on acquisition ......................................
Company
Implied
Fair Value
$ 500,000
850,000
$ (350,000)
Parent
Price
(100%)
$ 500,000
850,000
$ (350,000)
NCI
Value
(0%)
N/A
$500,000 price $350,000 net book value = $150,000 excess to be allocated as follows:
Current assets ....................................................
$ 50,000
Fixed assets .......................................................
450,000
Gain on acquisition ............................................
(350,000)
$ 150,000
5. (a)
Goodwill .......................................................
*$800,000/80% = $1,000,000.
Company
Implied
Fair Value
$1,000,000*
850,000
$ 150,000
Parent
Price
(80%)
$800,000
680,000
$120,000
NCI
Value
(20%)
$200,000
170,000
$ 30,000
$800,000 parents price (80% $350,000 net book value) .............
NCI adjustment, $200,000 (20% $350,000 net book value) .........
Total adjustment to be allocated .........................................................
Current assets ....................................................................................
Fixed assets .......................................................................................
Goodwill ...............................................................................................
$520,000
130,000
$650,000 as follows:
$ 50,000
450,000
150,000
$650,000
32
(b)
Company
Parent
NCI
Implied
Price
Value
Fair Value
(80%)
(20%)
$770,000**
$600,000
$170,000*
850,000
680,000
170,000
Gain on acquisition ......................................
$ (80,000)
$ (80,000)
N/A
*Cannot be less than the NCI share of the fair value of net assets excluding goodwill.
**$600,000 parent price + $170,000 minimum allowable for NCI = $770,000.
$600,000 parents price (80% $350,000 book value)................
NCI adjustment, $170,000 (20% $350,000 net book value) .....
Total adjustment to be allocated .....................................................
Current assets .................................................................................
Fixed assets ....................................................................................
Gain on acquisition ..........................................................................
6.
Goodwill .......................................................
*$800,000/80% = $1,000,000
Company
Implied
Fair Value
$1,000,000*
850,000
$ 150,000
$320,000
100,000
$420,000 as follows:
$ 50,000
450,000
(80,000)
$420,000
Parent
Price
(80%)
$800,000
680,000
$120,000
NCI
Value
(20%)
$200,000
170,000
$ 30,000
The NCI will be valued at $200,000, which is 20% of the implied company value. The NCI account will be displayed on the consolidated balance sheet as a subdivision of equity. It is shown
as a total, not broken down into par, paid-in capital in excess of par, and retained earnings.
33
Ch. 2
EXERCISES
EXERCISE 2-1
Salvania Corporation
Pro Forma Income Statement
Ownership Levels
Sales .......................................................................
Cost of goods sold ..................................................
Gross profit .............................................................
Selling and administrative expenses .......................
Operating income....................................................
Dividend income (10% $15,000 dividends) ..........
Investment income (30% $95,000 reported
income) .............................................................
Net income..............................................................
Noncontrolling interest (20% $95,000 reported
income) .............................................................
Controlling interest ..................................................
10%
30%
80%
$700,000
300,000
$400,000
120,000
$280,000
1,500
$700,000
300,000
$400,000
120,000
$280,000
$1,100,000
530,000
$ 570,000
195,000
$ 375,000
28,500
$308,500
$ 375,000
$281,500
19,000
$ 356,000
34
Ch. 2
EXERCISE 2-2
(1)
Company fair value ..........................................
Fair value of net assets excluding goodwill ......
Goodwill ...........................................................
Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$450,000
390,000
$ 60,000
$360,000*
312,000
$ 48,000
$90,000
78,000
$12,000
*1,000 prior shares included at $45 ($315,000/7,000 shares) per share, the market value
on January 1, 2016. $315,000 + $45,000 = $360,000.
Determination and Distribution of Excess Schedule
Company
Implied
Fair Value
Fair value of subsidiary .............
Less book value of interest acquired:
Common stock ($10 par) .......
Retained earnings .................
Total equity ........................
Interest acquired ....................
Book value ................................
Excess of fair value over book
value ......................................
$450,000
$100,000
240,000
$340,000
$110,000
Parent
Price
(80%)
NCI
Value
(20%)
$360,000
$ 90,000
$340,000
80%
$272,000
$340,000
20%
$ 68,000
$ 88,000
$ 22,000
Adjustment of identifiable accounts:

Adjustment
Equipment ($150,000 fair
$100,000 book value) ............
Goodwill ....................................
Total ..................................
$ 50,000
60,000
$110,000
Worksheet
Key
debit D1
debit D2
(2) Investment in Doyle ................................................................

Cash ...................................................................................
Investment in Doyle (1,000 $45) ..........................................
Available-for-Sale Investment .............................................
Unrealized Gain on Investment ..........................................
315,000
315,000
45,000
40,000
5,000
Note: Applicable allowance for any market value adjustment would also be reversed.
35
Ch. 2
EXERCISE 2-3
Company
Implied
Fair Value

Company fair value .................................................
Fair value of net assets excluding goodwill
($280,000 book value + $20,000) ....................
Goodwill ..................................................................
1.
Parent
Price
(100%)
NCI
Value
(0%)
$530,000
$530,000
N/A
300,000
$230,000
300,000
$230,000
(a) Cash ................................................................................

Accounts Receivable .......................................................
Inventory .........................................................................
Property, Plant, and Equipment ($270,000 + $20,000) ....
Goodwill ..........................................................................
Current Liabilities .......................................................
Bonds Payable...........................................................
Cash ..........................................................................
20,000*
70,000
100,000
290,000
230,000
80,000
100,000
530,000*
*Cash may be shown as a net credit of $510,000.

(b)
Glass Company
Balance Sheet
Assets
Current assets:
Cash ...............................................................
Accounts receivable ........................................
Inventory .........................................................
Property, plant, and equipment (net) ....................
Goodwill ...............................................................
Total assets ..........................................................
Liabilities and Stockholders Equity
Liabilities:
Current liabilities .............................................
Bonds payable ................................................
Stockholders equity:
Common stock ($100 par) ..............................
Retained earnings...........................................
Total liabilities and stockholders equity ................
2.
(a) Investment in Plastic.............................................

Cash ...............................................................
$ 30,000
120,000
150,000
$220,000
350,000
$200,000
280,000
$ 300,000
520,000
230,000
$1,050,000
$ 570,000
480,000
$1,050,000
530,000
530,000
(b) Investment in Plastic appears as a long-term investment on Glasss unconsolidated

balance sheet.
(c) The balance sheet would be identical to that which resulted from the asset acquisition
of part (1).
36
Ch. 2
EXERCISE 2-4
Company
Implied
Fair Value

Fair value of net assets excluding goodwill .............
Goodwill
Gain on acquisition
Parent
Price
(100%)
NCI
Value
(0%)
To be determined
$580,000*
$580,000
N/A
*$420,000 net asset book value + $40,000 inventory increase + $20,000 land increase +
$100,000 building increase = $580,000 fair value.
(1) Goodwill will be recorded if the price is above $580,000.
(2) A gain will be recorded if the price is below $580,000.
EXERCISE 2-5
(1) Investment in Pail Inc. ............................................................
Cash ...................................................................................
950,000
Acquisition Costs Expense......................................................

Cash ...................................................................................
10,000
(2)
Goodwill ...........................................................
950,000
10,000
Company
Implied
Fair Value
Parent
Price
(100%)
NCI
Value
(0%)
$950,000
850,000*
$100,000
$950,000
850,000
$100,000
N/A
*$700,000 net book value + $50,000 inventory increase + $100,000 depreciable fixed
assets increase = $850,000 fair value.
Company
Implied
Fair Value
Paid-in capital in excess of par
Total stockholders equity ..
Book value ................................
value ......................................
$950,000
$300,000
380,000
20,000
$700,000
$250,000
Parent
Price
(100%)
NCI
Value
(0%)
$950,000
N/A
$700,000
100%
$700,000
$250,000
37
Ch. 2
Exercise 2-5, Concluded

Inventory ($250,000 fair

$200,000 book value) ............
Depreciable fixed assets
($700,000 fair $600,000
book value) ............................
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 50,000
debit D1
100,000
100,000
$250,000
debit D2
debit D3
(3) Elimination entries:

Common Stock ($10 par)Pail ..............................................
Paid-In Capital in Excess of ParPail ....................................
Retained EarningsPail .........................................................
Investment in Pail Inc. ........................................................
300,000
380,000
20,000
Inventory .................................................................................
Depreciable Fixed Assets .......................................................
Goodwill ..................................................................................
Investment in Pail Inc. ........................................................
50,000
100,000
100,000
700,000
250,000
EXERCISE 2-6
(1)
Company
Implied
Fair Value

Goodwill
Gain on acquisition ..........................................
Parent
Price
(100%)
$ 700,000
885,000
$ 700,000
885,000
$(185,000)
$(185,000)
NCI
Value
(0%)
N/A
38
Ch. 2

Company
Implied
Fair Value
Price paid for investment ..........
Common stock ($5 par) .........
Total equity ........................
Book value ................................
value ......................................
$700,000
$200,000
300,000
175,000
$675,000
$ 25,000
Parent
Price
(100%)
NCI
Value
(0%)
$700,000
N/A
$675,000
100%
$675,000
$ 25,000

$200,000 book value) ............
Property, plant, and equipment
($700,000 fair $500,000
book value) ............................
Computer software ($130,000
fair $125,000 book value) ...
Premium on bonds payable
($200,000 fair $210,000
book value) ............................
Gain on acquisition ...................
Total ..................................
Adjustment
Worksheet
Key
$ 15,000
debit D1
200,000
debit D2
5,000
debit D3
(10,000)
(185,000)
$ 25,000
credit D4
credit D5

Common Stock ($5 par)Genall ............................................
Paid-In Capital in Excess of ParGenall ................................
Retained EarningsGenall.....................................................
Investment in Genall Company ...........................................
200,000
300,000
175,000
Inventory .................................................................................
Property, Plant, and Equipment ..............................................
Computer Software .................................................................
Gain on Acquisition.............................................................
Premium on Bonds Payable ...............................................
Investment in Genall Company ...........................................
15,000
200,000
5,000
675,000
185,000
10,000
25,000
39
Ch. 2
EXERCISE 2-7
(1) (a) Value of NCI implied by price paid by parent

Goodwill ...........................................................
*$800,000/80% = $1,000,000.
**$1,000,000 20% = $200,000.
Company
Implied
Fair Value
Parent
Price
(80%)
$1,000,000*
820,000
$ 180,000
$800,000
656,000
$144,000
NCI
Value
(20%)
$200,000**
164,000
$ 36,000

Less book value of interest
acquired:
Total equity ........................
Book value ................................
value ......................................
Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$1,000,000
$800,000
$200,000
$500,000
80%
$400,000
$500,000
20%
$100,000
$400,000
$100,000
$ 100,000
150,000
250,000
$ 500,000
$ 500,000

$200,000 book value) ............
Land ($200,000 fair
$100,000 book value) ............
Building ($650,000 fair
$450,000 book value) ............
$230,000 book value) ............
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 50,000
debit D1
100,000
debit D2
200,000
debit D3
(30,000)
180,000
$500,000
credit D4
debit D5
40
Ch. 2
Exercise 2-7, Continued

(b) NCI = 4,000 shares at $45

Goodwill ...........................................................
Company
Implied
Fair Value
Parent
Price
(80%)
$980,000
820,000
$160,000
$800,000
656,000
$144,000
NCI
Value
(20%)
$180,000*
164,000
$ 16,000
*4,000 shares $45.

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$980,000
$100,000
150,000
250,000
$500,000
$480,000
Parent
Price
(80%)
NCI
Value
(20%)
$800,000
$180,000
$500,000
80%
$400,000
$500,000
20%
$100,000
$400,000
$ 80,000

$200,000 book value) ............
Land ($200,000 fair
$100,000 book value) ............
$450,000 book value) ............
$230,000 book value) ............
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 50,000
debit D1
100,000
debit D2
200,000
debit D3
(30,000)
160,000
$480,000
credit D4
debit D5
41
Ch. 2
Exercise 2-7, Continued
(c) NCI = 20% of fair value of net tangible assets
Company
Implied
Fair Value
Parent
Price
(80%)
$964,000
820,000
$144,000
$800,000
656,000
$144,000

Goodwill ...........................................................
NCI
Value
(20%)
$164,000*
164,000
$
0
*Equal to 20% of fair value of net identifiable assets.

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$964,000
$100,000
150,000
250,000
$500,000
$464,000
Parent
Price
(80%)
NCI
Value
(20%)
$800,000
$164,000
$500,000
80%
$400,000
$500,000
20%
$100,000
$400,000
$ 64,000

$200,000 book value) ............
Land ($200,000 fair
$100,000 book value) ............
$450,000 book value) ............
$230,000 book value) ............
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 50,000
debit D1
100,000
debit D2
200,000
debit D3
(30,000)
144,000
$464,000
credit D4
debit D5
42
Ch. 2

(a) Value of NCI implied by price paid by parent
Common Stock ($5 par)Commo (80%)................................
Paid-In Capital in Excess of ParCommo (80%) ...................
Retained EarningsCommo (80%) ........................................
Investment in Commo Company.........................................
80,000
120,000
200,000
Inventory .................................................................................
Land .......................................................................................
Building ...................................................................................
Goodwill ..................................................................................
Equipment ..........................................................................
Investment in Commo Company (excess remaining) ..........
Noncontrolling Interest (to adjust to fair value) ....................
50,000
100,000
200,000
180,000
400,000
30,000
400,000
100,000
(b) NCI = 4,000 shares at $45

80,000
120,000
200,000
Inventory .................................................................................
Land .......................................................................................
Building ...................................................................................
Goodwill ..................................................................................
Equipment ..........................................................................
50,000
100,000
200,000
160,000
400,000
30,000
400,000
80,000
(c) NCI = 20% of fair value of net tangible assets

80,000
120,000
200,000
Inventory .................................................................................
Land .......................................................................................
Building ...................................................................................
Goodwill ..................................................................................
Equipment ..........................................................................
50,000
100,000
200,000
144,000
400,000
30,000
400,000
64,000
43
Ch. 2
EXERCISE 2-8
(1)
Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$646,000
670,000
$ (24,000)
$512,000**
536,000
$ (24,000)
$134,000*
134,000
N/A
*Must at least equal fair value of assets.

**8,000 shares $64.
Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$646,000
$ 50,000
130,000
370,000
$550,000
$ 96,000
Parent
Price
(80%)
NCI
Value
(20%)
$512,000
$134,000
$550,000
80%
$440,000
$550,000
20%
$110,000
$ 72,000
$ 24,000

$280,000 book value) ............
Property, plant, and equipment
($500,000 fair $400,000
book value) ............................
Goodwill ($0 fair $100,000
book value) ............................
Total ..................................
Adjustment
Worksheet
Key
$ 120,000
debit D1
100,000
debit D2
(100,000)
(24,000)
$ 96,000
credit D3
credit D4
44
Ch. 2

Common Stock ($5 par) (80%) ...............................................
Paid-In Capital in Excess of Par (80%) ...................................
Retained Earnings (80%) ........................................................
Investment in Sundown Company ......................................
40,000
104,000
296,000
Inventory .................................................................................
Property, Plant, and Equipment ..............................................
Goodwill .............................................................................
Gain on Acquisition (Venus retained earnings) ...................
Investment in Sundown Company (excess remaining) .......
120,000
100,000
440,000
100,000
24,000
72,000
24,000
EXERCISE 2-9
(1) Investment in Craig Company .................................................
Cash ...................................................................................
(2)
Company
Implied
Fair Value

Goodwill ...........................................................
$950,000
900,000
$ 50,000
950,000
950,000
Parent
Price
(100%)
NCI
Value
(0%)
$950,000
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$950,000
$300,000
420,000
$720,000
$230,000
Parent
Price
(100%)
NCI
Value
(0%)
$950,000
N/A
$720,000
100%
$720,000
$230,000
45
Ch. 2

Land ($250,000 fair $200,000

book value) ............................
$600,000 book value) ............
Discount on bonds payable
($280,000 fair $300,000
book value) ............................
Deferred tax liability ($40,000
fair $50,000 book value) .....
Goodwill ....................................
Total ......................................
Adjustment
Worksheet
Key
$ 50,000
debit D1
100,000
debit D2
20,000
debit D3
10,000
50,000
$230,000
debit D4
debit D5
(3) Adjustments on Craig books:

Land .......................................................................................
Building ...................................................................................
Discount on Bonds Payable ....................................................
Goodwill ..................................................................................
Deferred Tax Liability ..............................................................
Paid-In Capital in Excess of Par .........................................
50,000
100,000
20,000
50,000
10,000
230,000

Common Stock .......................................................................
Paid-In Capital in Excess of Par ..............................................
Retained Earnings ..................................................................
Investment in Craig Company ............................................
300,000
230,000
420,000
950,000
46
Ch. 2
APPENDIX EXERCISE
EXERCISE 2A-1

Fair value of net assets excluding goodwill .............
Goodwill ..................................................................
Public
Company
Implied
Fair Value
Parent
Price
(60%)b
NCI
Value
(40%)c
$5,000a
3,000
$2,000
$3,000
1,800
$1,200
$2,000
1,200
$ 800
Values are prior to acquisition (200 shares $25 market value).

Subsequent to acquisition, Private Company is the parent with 60% ownership [300 sh./(200
+ 300 = 500 sh.)]; prior to acquisition, Private Company has 0% ownership of Public Company.
c
Prior to acquisition, this represents 100% ownership of Public Company; subsequent to acquisition, these holders of 100 shares of Public Company become the 40% NCI.
b

Public
Company
Implied
Fair Value
Fair value of subsidiary ....................
Common stock ($1 par) ..............
Paid-in capital in excess of par ...
Retained earnings ......................
Total equity ...........................
Interest acquired ........................
Book value .......................................
value ..........................................
$5,000
Parent
Price
(60%)
NCI
Value
(40%)
$3,000
$2,000
$2,000
60%
$1,200
$2,000
40%
$ 800
$3,000
$1,800
$1,200
Adjustment
Worksheet
Key
$ 200
800
1,000
$2,000
Fixed assets ($3,000 fair

$2,000 book value) .....................
Goodwill ...........................................
Total .....................................
$1,000
2,000
$3,000
debit D1
debit D2
47
Ch. 2
PROBLEMS
PROBLEM 2-1
(1)
Company
Implied
Fair Value

Goodwill ...........................................................
$475,000
335,000
$140,000
Parent
Price
(100%)
NCI
Value
(0%)
$475,000
335,000
$140,000
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$475,000
$ 50,000
70,000
130,000
$250,000
$225,000
Parent
Price
(100%)
NCI
Value
(0%)
$475,000
N/A
$250,000
100%
$250,000
$225,000

$120,000 book value) ............
Land ($45,000 fair $35,000
book value) ............................
Building and equipment
($225,000 fair $180,000
net book value) ......................
Copyright ($25,000 fair
$10,000 book value) ..............
($105,000 fair $100,000
book value) ............................
Goodwill ($475,000
$335,000) ..............................
Total ..................................
Adjustment
Worksheet
Key
$ 20,000
debit D1
10,000
debit D2
45,000
debit D3
15,000
debit D4
(5,000)
credit D5
140,000
$225,000
debit D6
48
Ch. 2
Problem 2-1, Concluded

(2)
Adam Company and Subsidiary Sampson Company

Worksheet for Consolidated Balance Sheet
December 31, 2011
Eliminations
Consolidated
Balance Sheet
and Adjustments
Balance
Adam
Sampson
Dr.
Cr.
Sheet
Cash ...........................................
160,000
40,000
.............
............
200,000
Accounts Receivable ..................
70,000
30,000
.............
............
100,000
Inventory.....................................
130,000
120,000
(D1) 20,000
............
270,000
Investment in Sampson..............
475,000
............
............. (EL) 250,000
............
............
............
............. (D) 225,000
............
Land ...........................................
50,000
35,000
(D2) 10,000
............
95,000
Buildings and Equipment ...........
350,000
230,000
(D3) 45,000
............
625,000
Accumulated Depreciation .........
(100,000)
(50,000)
.............
............ (150,000)
Copyrights ..................................
40,000
10,000
(D4) 15,000
............
65,000
Goodwill......................................
............
............
(D6) 140,000
............
140,000
Current Liabilities .......................
(192,000)
(65,000)
.............
............ (257,000)
Bonds Payable ...........................
............
(100,000)
.............
............ (100,000)
Discount (premium) ....................
............
............
............. (D5)
5,000
(5,000)
Common StockSampson ........
............
(50,000)
(EL) 50,000
............
............
Paid-In Capital in Excess of
ParSampson........................
............
(70,000)
(EL) 70,000
............
............
Retained EarningsSampson ...
............
(130,000)
(EL) 130,000
............
............
Common StockAdam..............
(100,000)
............
.............
............ (100,000)
ParAdam .............................
(250,000)
............
.............
............ (250,000)
Retained EarningsAdam.........
(633,000)
............
.............
............ (633,000)
Totals ......................................
0
0
480,000
480,000
0
Eliminations and Adjustments:
(EL)
Eliminate investment in subsidiary against subsidiary equity accounts.
(D)
Distribute $225,000 excess of cost over book value to:
(D1)
Inventory, $20,000.
(D2)
Land, $10,000.
(D3)
Buildings and equipment, $45,000.
(D4)
Copyrights, $15,000.
(D5)
Premium on bonds payable, ($5,000).
(D6)
Goodwill, $140,000.
49
Ch. 2
PROBLEM 2-2
(1)
Company
Implied
Fair Value

Goodwill ...........................................................
$475,000
335,000
$140,000
Parent
Price
(80%)
$380,000
268,000
$112,000
NCI
Value
(20%)
$95,000
67,000
$28,000

Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$380,000
$ 95,000
$250,000
80%
$200,000
$250,000
20%
$ 50,000
$225,000
$180,000
$ 45,000
Adjustment
Worksheet
Key
$ 20,000
debit D1
10,000
debit D2
45,000
debit D3
15,000
debit D4

Total equity ........................
Book value ................................
value ......................................
$475,000
$ 50,000
70,000
130,000
$250,000

$120,000 book value) ............
Land ($45,000 fair $35,000
book value) ............................
Buildings and equipment
($225,000 fair $180,000
net book value) ......................
Copyrights ($25,000 fair
$10,000 book value) ..............
($105,000 fair $100,000
book value) ............................
Goodwill ....................................
Total ......................................
(5,000)
140,000
$225,000
credit D5
debit D6
50
Ch. 2

(2)
Adam Company and Subsidiary Sampson Company

December 31, 2011
Cash ........................................
Accounts Receivable ...............
Inventory..................................
Investment in Sampson...........
Balance Sheet
Adam
Sampson
255,000
40,000
70,000
30,000
130,000
120,000
380,000
............
............
............
50,000
35,000
350,000
230,000
(100,000)
(50,000)
40,000
10,000
............
............
(192,000)
(65,000)
............
(100,000)
............
............
............
(50,000)
Land ........................................
Buildings and Equipment ........
Accumulated Depreciation ......
Copyrights ...............................
Goodwill...................................
Current Liabilities ....................
Bonds Payable ........................
Discount (premium) .................
Common StockSampson .....
ParSampson..................... ............
Retained EarningsSampson ............
Common StockAdam........... (100,000)
ParAdam .......................... (250,000)
Retained EarningsAdam...... (633,000)
Noncontrolling Interest ............ ............
Totals ...................................
0
(70,000)
(130,000)
............
............
............
............
0
(D1)
(D2)
(D3)
(D4)
(D6)
(EL)
Eliminations
and Adjustments
Dr.
Cr.
............
............
............
............
20,000
............
............ (EL) 200,000
............ (D) 180,000
10,000
............
45,000
............
............
............
15,000
............
140,000
............
............
............
............
............
(D5) 5,000 ...
40,000
............
(EL) 56,000
............
(EL) 104,000 (NCI) 45,000
............
............
............
............
............
430,000
............
............
............
430,000
Consolidated
Balance
NCI
Sheet
............
295,000
............
100,000
............
270,000
............
............
............
............
............
95,000
............
625,000
............
(150,000)
............
65,000
............
140,000
............
(257,000)
............
(100,000)
.. (5,000)
(10,000)
............
(14,000)
(71,000)
............
............
............
(100,000)
............
............
(95,000)
0
(250,000)
(633,000)
(95,000)
0

(EL)
Eliminate investment in subsidiary against 80% of the subsidiary equity accounts.
(D)/(NCI) Distribute $180,000 excess of cost over book value and $45,000 NCI adjustment to:
(D1)
Inventory, $20,000.
(D2)
Land, $10,000.
(D3)
Buildings and equipment, $45,000.
(D4)
Copyrights, $15,000.
(D5)
Premium on bonds payable, ($5,000).
(D6)
Goodwill, $140,000.
51
Ch. 2
PROBLEM 2-3
(1) Investment in Dalke Company ................................................
Common Stock ($1 par) .....................................................
Paid-In Capital in Excess of Par ($720,000 $$18,000 par)
*18,000 shares $40.
Acquisition Expense (close to Retained Earnings) ..................
Cash ...................................................................................
(2)
Company
Implied
Fair Value

Goodwill ...........................................................
$720,000
405,000
$315,000
720,000*
18,000
702,000
40,000
40,000
Parent
Price
(100%)
$720,000
405,000
$315,000
NCI
Value
(0%)
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$720,000
$ 20,000
180,000
140,000
$340,000
$380,000
Parent
Price
(100%)
NCI
Value
(0%)
$720,000
N/A
$340,000
100%
$340,000
$380,000

$60,000 book value) ..............
Land ($90,000 fair $40,000
book value) ............................
$120,000 book value) ............
$110,000 book value) ............
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 20,000
debit D1
50,000
debit D2
30,000
debit D3
(35,000)
315,000
$380,000
credit D4
debit D5
52
Ch. 2

(3)
Raabe Company and Subsidiary Dalke Company

Consolidated Balance Sheet
July 1, 2016
Assets
Current assets:
Other assets .......................................................................
Inventory (including $20,000 adjustment) ...........................
$ 80,000*
200,000
$ 280,000
Long-lived assets:
Land (including $50,000 increase) ......................................
Building (including $30,000 increase) .................................
Equipment (including $35,000 decrease)............................
Goodwill .............................................................................
Total assets ............................................................................
$190,000
450,000
505,000
315,000
1,460,000
$1,740,000

Current liabilities .....................................................................
Common stock, par ............................................................
Paid-in capital in excess of par ...........................................
Retained earnings ..............................................................
Total stockholders equity .......................................................
Total liabilities and stockholders equity ..................................
$ 240,000
$ 58,000
1,062,000
380,000**
1,500,000
$1,740,000
*$50,000 + $70,000 less $40,000 acquisition costs.

**$420,000 less $40,000 acquisition costs.
53
Ch. 2
PROBLEM 2-4
(1) Investment in Dalke Company ................................................
Common Stock ($1 par) .....................................................
Paid-In Capital in Excess of Par ($560,000 $14,000 par).
*14,000 shares $40.
Acquisition Expense (close to Retained Earnings) ..................
Cash ...................................................................................
(2)
Goodwill ...........................................................
560,000*
14,000
546,000
40,000
40,000
Company
Implied
Fair Value
Parent
Price
(80%)
$700,000*
405,000
$295,000
$560,000
324,000
$236,000
NCI
Value
(20%)
$140,000
81,000
$ 59,000
*$560,000/80%.
Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$700,000
$ 20,000
180,000
140,000
$340,000
$360,000
Parent
Price
(80%)
NCI
Value
(20%)
$560,000
$140,000
$340,000
80%
$272,000
$340,000
20%
$ 68,000
$288,000
$ 72,000

$60,000 book value) ..............
Land ($90,000 fair $40,000
book value) ............................
$120,000 book value) ............
$110,000 book value) ............
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 20,000
debit D1
50,000
debit D2
30,000
debit D3
(35,000)
295,000
$360,000
credit D4
debit D5
54
Ch. 2

(3)
Raabe Company and Subsidiary Dalke Company

Consolidated Balance Sheet
July 1, 2016
Assets
Current assets:
Other assets .......................................................................
Inventory (including $20,000 adjustment) ...........................
$ 80,000*
200,000
$ 280,000
Long-lived assets:
Land (including $50,000 increase) ......................................
Building (including $30,000 increase) .................................
Equipment (including $35,000 decrease)............................
Goodwill .............................................................................
Total assets ............................................................................
$190,000
450,000
505,000
295,000
1,440,000
$1,720,000

Current liabilities .....................................................................
Common stock (par) ...........................................................
Paid-in capital in excess of par ...........................................
Retained earnings ..............................................................
Total controlling interest ..........................................................
Noncontolling interest .............................................................
Total stockholders equity .......................................................
Total liabilities and stockholders equity ..................................
$ 240,000
$ 54,000
906,000
380,000**
$1,340,000
140,000
$1,480,000
$1,720,000
*$50,000 + $70,000 less $40,000 acquisition costs.

**$420,000 less $40,000 acquisition costs.
55
Ch. 2
PROBLEM 2-5
(1) Investment in Express Corporation .........................................
Cash ...................................................................................
(2)
Company
Implied
Fair Value

Gain on acquisition (retained earnings) ............
$405,400**
427,000
$ (21,600)
320,000
320,000
Parent
Price
(80%)
NCI
Value
(20%)
$320,000
341,600
$ (21,600)
$85,400*
85,400
$
0
*NCI minimum allowed is equal to fair value of net assets.

**Parents 80% + NCIs minimum.
Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$405,400
$ 50,000
250,000
70,000
$370,000
$ 35,400
Parent
Price
(80%)
NCI
Value
(20%)
$320,000
$ 85,400
$370,000
80%
$296,000
$370,000
20%
$ 74,000
$ 24,000
$ 11,400

$80,000 book value) ..............
Land ($50,000 fair $40,000
book value) ............................
Buildings ($200,000 fair
$180,000 net book value) ......
$160,000 net book value) ......
($95,000 fair $100,000
book value) ............................
Total ..................................
Adjustment
Worksheet
Key
$ 20,000
debit D1
10,000
debit D2
20,000
debit D3
2,000
debit D4
5,000
(21,600)
$ 35,400
debit D5
credit D6
56
Ch. 2

Common StockExpress ($50,000 80%) ............................
Paid-In Capital in Excess of ParExpress ($250,000 80%)
Retained EarningsExpress ($70,000 80%) .......................
Investment in Express Corporation .....................................
40,000
200,000
56,000
Inventory .................................................................................
Land .......................................................................................
Buildings .................................................................................
Equipment ..............................................................................
Retained EarningsPenson (controlling gain) ...................
Investment in Express Corporation .....................................
Retained EarningsExpress (NCI equity share) ................
20,000
10,000
20,000
2,000
5,000
296,000
21,600
24,000
11,400
PROBLEM 2-6
(1) Investment in Robby Corporation ............................................
Cash ...................................................................................
(2)
Company
Implied
Fair Value

Goodwill ...........................................................
$480,000
417,000
$ 63,000
480,000
480,000
Parent
Price
(100%)
NCI
Value
(0%)
$480,000
417,000
$ 63,000
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$480,000
$ 50,000
250,000
70,000
$370,000
$110,000
Parent
Price
(100%)
NCI
Value
(0%)
$480,000
N/A
$370,000
100%
$370,000
$110,000
57
Ch. 2

$80,000 book value) ..............
Land ($55,000 fair $40,000
book value) ............................
$180,000 net book value) ......
$160,000 net book value) ......
($98,000 fair $100,000
book value) ............................
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$ 20,000
debit D1
15,000
debit D2
20,000
debit D3
(10,000)
credit D4
2,000
63,000
$110,000
debit D5
debit D6
(3) Inventory .................................................................................

Land .......................................................................................
Buildings .................................................................................
Goodwill ..................................................................................
Equipment ..........................................................................
Paid-In Capital in Excess of Par .........................................
20,000
15,000
20,000
2,000
63,000
10,000
110,000
PROBLEM 2-7
(1) Investment in Entro Corporation..............................................
Cash ...................................................................................
(2)
Gain on acquisition (retained earnings) ............
400,000
400,000
Company
Implied
Fair Value
Parent
Price
(100%)
$400,000
420,000
$ (20,000)
$400,000
420,000
$ (20,000)
NCI
Value
(0%)
N/A
58
Ch. 2

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$400,000
$ 50,000
250,000
70,000
$370,000
$ 30,000
Parent
Price
(100%)
NCI
Value
(0%)
$400,000
N/A
$370,000
100%
$370,000
$ 30,000

$80,000 book value) ..............
Land ($40,500 fair $40,000
book value) ............................
$180,000 net book value) ......
$160,000 net book value) ......
($95,000 fair $100,000
book value) ............................
Total ......................................
Adjustment
Worksheet
Key
$ 20,000
debit D1
500
debit D2
22,500
debit D3
2,000
debit D4
5,000
(20,000)
$ 30,000
debit D5
credit D6

Common StockEntro ...........................................................
Paid-In Capital in Excess of ParEntro ..................................
Retained EarningsEntro ......................................................
Investment in Entro Corporation .........................................
50,000
250,000
70,000
Inventory .................................................................................
Land .......................................................................................
Building ...................................................................................
Equipment ..............................................................................
Retained Earnings, Carlson (controlling gain) .....................
Investment in Entro Corporation .........................................
20,000
500
22,500
2,000
5,000
370,000
20,000
30,000
59
Ch. 2
PROBLEM 2-8
(1)
Company
Implied
Fair Value

Goodwill ...........................................................
$500,000
450,000
$ 50,000
Parent
Price
(100%)
NCI
Value
(0%)
$500,000
450,000
$ 50,000
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$500,000
$ 10,000
90,000
60,000
$160,000
Parent
Price
(100%)
NCI
Value
(0%)
$500,000
N/A
$160,000
100%
$160,000
$340,000
$340,000
Adjustment
Worksheet
Key
$ 10,000
debit D1
40,000
debit D2
170,000
debit D3
20,000
debit D4
50,000
50,000
$340,000
debit D5
debit D6

$50,000 book value) ..............
Land ($80,000 fair $40,000
book value) ............................
$150,000 net book value) ......
$40,000 net book value) ........
$0 book value) .......................
Goodwill ....................................
Total ..................................
60
Ch. 2

(2)
Palto Company and Subsidiary Saleen Company

January 1, 2011
Eliminations
Consoli-
and Adjustments
Dr.
Cr.
............
............
............
............
10,000
............
............ (EL) 160,000
............ (D) 340,000
40,000
............
170,000
............
............
............
20,000
............
............
............
50,000
............
50,000
............
............
............
............
............
Balance
Sheet
61,000
85,000
140,000
............
............
180,000
620,000
(130,000)
170,000
(60,000)
50,000
50,000
(120,000)
(300,000)
dated
Cash ........................................
Inventory..................................
Investment in Saleen ...............
Balance Sheet
Palto
Saleen
61,000
............
65,000
20,000
80,000
50,000
500,000
............
............
............
100,000
40,000
250,000
200,000
(80,000)
(50,000)
90,000
60,000
(40,000)
(20,000)
............
............
............
............
(80,000)
(40,000)
(200,000) (100,000)
(D1)
Land ........................................
(D2)
Buildings ..................................
(D3)
Equipment ...............................
(D4)
Copyright .................................
(D5)
Goodwill...................................
(D6)
Bonds Payable ........................
Common Stock ($1 par)
Saleen .................................. ............
(10,000) (EL) 10,000
............
ParSaleen ......................... ............
(90,000) (EL) 90,000
............
Retained EarningsSaleen .... ............
(60,000) (EL) 60,000
............
Common StockPalto ............ (20,000)
............
............
............
ParPalto ............................ (180,000)
............
............
............
Retained EarningsPalto ....... (546,000)
............
............
............
Totals ...................................
0
0
500,000
500,000
Noncontrolling Interest .......................................................................................................
Controlling Retained Earnings ...........................................................................................
Totals ..............................................................................................................................
............
............
............
(20,000)
(180,000)
(546,000)
............
............
............
0

(EL)
Eliminate the investment in the subsidiary against the subsidiary equity accounts.
(D)
Distribute $340,000 excess of cost over book value as follows:
(D1)
Inventory, $10,000.
(D2)
Land, $40,000.
(D3)
Buildings, $170,000.
(D4)
Equipment, $20,000.
(D5)
Copyright, $50,000.
(D6)
Goodwill, $50,000.
61
Ch. 2
PROBLEM 2-9
(1)
Company
Implied
Fair Value

Goodwill ...........................................................
$492,000
450,000
$ 42,000
Parent
Price
(80%)
$400,000
360,000
$ 40,000
NCI
Value
(20%)
$92,000*
90,000
$ 2,000
*2,000 shares $46.

Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$400,000
$ 92,000
$160,000
80%
$128,000
$160,000
20%
$ 32,000
$332,000
$272,000
$ 60,000
Adjustment
Worksheet
Key
$ 10,000
debit D1
40,000
debit D2
170,000
debit D3
20,000
debit D4
50,000
42,000
$332,000
debit D5
debit D6

Total equity ........................
Book value ................................
value ......................................
$492,000
$ 10,000
90,000
60,000
$160,000

$50,000 book value) ..............
Land ($80,000 fair $40,000
book value) ............................
$150,000 net book value) ......
$40,000 net book value) ........
$0 book value) .......................
Goodwill ....................................
Total ..................................
62
Ch. 2

(2)

January 1, 2011
Cash ........................................
Inventory..................................
Balance Sheet
Palto
Saleen
161,000
............
65,000
20,000
80,000
50,000
400,000
............
............
............
100,000
40,000
250,000
200,000
(80,000)
(50,000)
90,000
60,000
(40,000)
(20,000)
............
............
............
............
(80,000)
(40,000)
(200,000) (100,000)
(D1)
Eliminations
and Adjustments
Dr.
Cr.
............
............
............
............
10,000
............
............ (EL) 128,000
............ (D) 272,000
40,000
............
170,000
............
............
............
20,000
............
............
............
50,000
............
42,000
............
............
............
............
............
NCI
............
............
............
............
............
............
............
............
............
............
............
............
............
............
Land ........................................
(D2)
Buildings ..................................
(D3)
Equipment ...............................
(D4)
Copyright .................................
(D5)
Goodwill...................................
(D6)
Bonds Payable ........................
Saleen .................................. ............
(10,000) (EL)
8,000
............
(2,000)
ParSaleen ......................... ............
(90,000) (EL) 72,000
............
(18,000)
(60,000) (EL) 48,000 (NCI) 60,000
(72,000)
............
............
............
............
ParPalto ............................ (180,000)
............
............
............
............
............
............
............
............
Totals ...................................
0
0
460,000
460,000
............
(92,000)
Controlling Retained Earnings ..............................................................................................................
Totals .................................................................................................................................................
Consolidated
Balance
Sheet
161,000
85,000
140,000
............
............
180,000
620,000
(130,000)
170,000
(60,000)
50,000
42,000
(120,000)
(300,000)
............
............
............
(20,000)
(180,000)
(546,000)
............
(92,000)
............
0

(EL)
(D)/(NCI) Distribute $272,000 excess and adjust NCI $60,000 (total $332,000 excess) as follows:
(D1)
Inventory, $10,000.
(D2)
Land, $40,000.
(D3)
(D4)
Equipment, $20,000.
(D5)
Copyright, $50,000.
(D6)
Goodwill, $42,000.
63
Ch. 2
PROBLEM 2-10
(1)
Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$390,000
450,000
$ (60,000)
$300,000
360,000
$ (60,000)
$90,000*
90,000
$
0
*NCI minimum allowed.

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$390,000
$ 10,000
90,000
60,000
$160,000
$230,000
Parent
Price
(80%)
NCI
Value
(20%)
$300,000
$ 90,000
$160,000
80%
$128,000
$160,000
20%
$ 32,000
$172,000
$ 58,000

$50,000 book value) ..............
Land ($80,000 fair $40,000
book value) ............................
$150,000 net book value) ......
$40,000 net book value) ........
Copyright ($50,000 fair $0
book value) ............................
Total ..................................
Adjustment
Worksheet
Key
$ 10,000
debit D1
40,000
debit D2
170,000
debit D3
20,000
debit D4
50,000
(60,000)
$230,000
debit D5
credit D6
64
Ch. 2

(2)

January 1, 2011
Cash ........................................
Inventory..................................
Balance Sheet
Palto
Saleen
261,000
............
65,000
20,000
80,000
50,000
300,000
............
............
............
100,000
40,000
250,000
200,000
(80,000)
(50,000)
90,000
60,000
(40,000)
(20,000)
............
............
............
............
(80,000)
(40,000)
(200,000) (100,000)
(D1)
Eliminations
and Adjustments
Dr.
Cr.
............
............
............
............
10,000
............
............ (EL) 128,000
............ (D) 172,000
40,000
............
170,000
............
............
............
20,000
............
............
............
50,000
............
............
............
............
............
............
............
NCI
............
............
............
............
............
............
............
............
............
............
............
............
............
............
Land ........................................
(D2)
Buildings ..................................
(D3)
Equipment ...............................
(D4)
Copyright .................................
(D5)
Goodwill...................................
Bonds Payable ........................
Saleen .................................. ............
(10,000) (EL)
8,000
............
(2,000)
ParSaleen ......................... ............
(90,000) (EL) 72,000
............
(18,000)
Retained EarningsSaleen ....
(60,000) (EL) 48,000 (NCI) 58,000
(70,000)
............
............
............
............
ParPalto ............................ (180,000)
............
............
............
............
............
............ (D6) 60,000
............
Totals ...................................
0
0
418,000
418,000
............
(90,000)
Controlling Retained Earnings ..............................................................................................................
Totals .................................................................................................................................................
Consolidated
Balance
Sheet
261,000
85,000
140,000
............
............
180,000
620,000
(130,000)
170,000
(60,000)
50,000
............
(120,000)
(300,000)
............
............
............
(20,000)
(180,000)
(606,000)
............
(90,000)
............
0

(EL)
(D)/(NCI) Distribute $172,000 excess and adjust NCI $58,000 (total $230,000 excess) as follows:
(D1)
Inventory, $10,000.
(D2)
Land, $40,000.
(D3)
(D4)
Equipment, $20,000.
(D5)
Copyright, $50,000.
(D6)
Gain on acquisition (close to Paltos Retained Earnings), $60,000.
65
Ch. 2
PROBLEM 2-11
(1)
Company
Implied
Fair Value
Parent
Price
(100%)
$400,000
450,000
$ (50,000)
$400,000
450,000
$ (50,000)
NCI
Value
(0%)
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$400,000
$ 10,000
90,000
60,000
$160,000
$240,000
Parent
Price
(100%)
NCI
Value
(0%)
$400,000
N/A
$160,000
100%
$160,000
$240,000

$50,000 book value) ..............
Land ($80,000 fair $40,000
book value) ............................
$150,000 net book value) ......
$40,000 net book value) ........
$0 book value) .......................
Gain ..........................................
Total ..................................
Adjustment
Worksheet
Key
$ 10,000
debit D1
40,000
debit D2
170,000
debit D3
20,000
debit D4
50,000
(50,000)
$240,000
debit D5
debit D6
66
Ch. 2

(2)

January 1, 2011
Eliminations
Consoli-
and Adjustments
Dr.
Cr.
............
............
............
............
10,000
............
............ (EL) 160,000
............ (D) 240,000
40,000
............
170,000
............
............
............
20,000
............
............
............
50,000
............
............
............
............
............
............
............
Balance
Sheet
161,000
85,000
140,000
............
............
180,000
620,000
(130,000)
170,000
(60,000)
50,000
............
(120,000)
(300,000)
dated
Cash ........................................
Inventory..................................
Balance Sheet
Palto
Saleen
161,000
............
65,000
20,000
80,000
50,000
400,000
............
............
............
100,000
40,000
250,000
200,000
(80,000)
(50,000)
90,000
60,000
(40,000)
(20,000)
............
............
............
............
(80,000)
(40,000)
(200,000) (100,000)
(D1)
Land ........................................
(D2)
Buildings ..................................
(D3)
Equipment ...............................
(D4)
Copyright .................................
(D5)
Goodwill...................................
Bonds Payable ........................
Saleen .................................. ............
(10,000) (EL) 10,000
............
ParSaleen ......................... ............
(90,000) (EL) 90,000
............
(60,000) (EL) 60,000
............
............
............
............
ParPalto ............................ (180,000)
............
............
............
............
............ (D6) 50,000
Totals ...................................
0
0
450,000
450,000
Controlling Retained Earnings ...........................................................................................
Totals ..............................................................................................................................
............
............
............
(20,000)
(180,000)
(596,000)
............
............
............
.......... 0

(EL)
(D)
Distribute $240,000 excess of cost over book value as follows:
(D1)
Inventory, 10,000.
(D2)
Land, $40,000.
(D3)
(D4)
Equipment, $20,000.
(D5)
Copyright, $50,000.
(D6)
Gain on acquisition (close to Paltos Retained Earnings), $50,000.
67
Ch. 2
PROBLEM 2-12
(1)
Company
Implied
Fair Value
Parent
Price
(100%)
$800,000
850,000
$ (50,000)
$800,000
850,000
$ (50,000)
NCI
Value
(0%)
N/A

Company
Implied
Fair Value
Less book value interest acquired:
Total equity ........................
Interest acquired .......................
Book value ................................
value ......................................
$800,000
$ 10,000
190,000
140,000
$340,000
$460,000
Parent
Price
(100%)
NCI
Value
(0%)
$800,000
N/A
$340,000
100%
$340,000
$460,000

$120,000 book value) ............
Land ($200,000 fair
$100,000 book value) ............
$200,000 net book value) ......
$90,000 net book value) ........
Patent ($150,000 fair $10,000
book value) ............................
fair $0 book value) ..............
($210,000 fair $200,000
book value) ............................
book value) ............................
Total ..................................
Adjustment
Worksheet
Key
$ (20,000)
credit D1
100,000
debit D2
200,000
debit D3
110,000
debit D4
140,000
debit D5
50,000
debit D6
(10,000)
credit D7
(60,000)
(50,000)
$460,000
credit D8
credit D9
68
Ch. 2

(2)
Purnell Corporation and Subsidiary Sentinel Corporation

December 31, 2011
Cash ....................................
Accounts Receivable ...........
Inventory ..............................
Investment in Sentinel .........
Land .....................................
Buildings ..............................
Accumulated Depreciation ..
Equipment ...........................
Patent ..................................
Computer Software .............
Goodwill ...............................
Current Liabilities .................
Bonds Payable ....................
Premium on Bonds Payable
Common StockSentinel ...
ParSentinel ...................
Retained EarningsSentinel
Balance Sheet
Purnell
Sentinel
20,000
............
300,000
50,000
410,000
120,000
800,000
............
............
............
800,000
100,000
2,800,000
300,000
(500,000) (100,000)
600,000
140,000
(230,000)
(50,000)
............
10,000
............
............
............
60,000
(150,000)
(90,000)
(300,000) (200,000)
............
............
............
(10,000)
............
............
(190,000)
(140,000)
(D2)
(D3)
(D4)
(D5)
(D6)
(EL)
Eliminations
and Adjustments
Dr.
Cr.
.............
............
.............
............
............. (D1) 20,000
............. (EL) 340,000
............. (D) 460,000
100,000
............
200,000
............
.............
............
110,000
............
.............
............
140,000
............
50,000
............
............. (D8) 60,000
.............
............
.............
............
............. (D7) 10,000
10,000
............
(EL) 190,000
(EL) 140,000
............
............
Common StockPurnell .....

(89,000)
............
.............
............
ParPurnell ..................... (3,361,000)
............
.............
............
Retained EarningsPurnell (1,100,000)
............
............. (D9) 50,000
Totals................................
0
0
940,000
940,000
NCI .....................................................................................................................................
Totals...............................................................................................................................
Consolidated
Balance
Sheet
20,000
350,000
510,000
............
............
1,000,000
3,300,000
(600,000)
850,000
(280,000)
150,000
50,000
............
(240,000)
(500,000)
(10,000)
............
............
............
(89,000)
(3,361,000)
(1,150,000)
............
............
0

(EL)
Eliminate parent ownership interest.
(D)
Distribute excess.
Distribute adjustments:
(D1)
Inventory.
(D2)
Land.
(D3)
Buildings.
(D4)
Equipment.
(D5)
Patent.
(D6)
Computer software.
(D7)
(D8)
Goodwill.
(D9)
Gain on acquisition (close to parent Retained Earnings).
2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S.
Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
69
Ch. 2
PROBLEM 2-13
(1)
Company
Implied
Fair Value

Goodwill ...........................................................
$1,100,000
850,000
$ 250,000
Parent
Price
(100%)
NCI
Value
(0%)
$1,100,000
850,000
$ 250,000
N/A

Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$1,100,000
10,000
190,000
140,000
$ 340,000
Parent
Price
(100%)
$1,100,000
NCI
Value
(0%)
N/A
$ 760,000
$ 340,000
100%
$ 340,000
$ 760,000

$120,000 book value) ............
Land ($200,000 fair $100,000
book value) ............................
$200,000 net book value) ......
$90,000 net book value) ........
Patent ($150,000 fair
$10,000 book value) ..............
fair $0 book value) ..............
($210,000 fair $200,000
book value) ............................
Goodwill ($250,000 fair
$60,000 book value) ..............
Total ......................................
Adjustment
Worksheet
Key
$(20,000)
credit D1
100,000
debit D2
200,000
debit D3
110,000
debit D4
140,000
debit D5
50,000
debit D6
(10,000)
credit D7
190,000
$760,000
debit D8
70
Ch. 2

(2)

December 31, 2011
Cash ....................................
Inventory ..............................
Land .....................................
Buildings ..............................
Equipment ...........................
Patent ..................................
Goodwill ...............................
Bonds Payable ....................
Balance Sheet
Purnell
Sentinel
20,000
............
300,000
50,000
410,000
120,000
1,100,000
............
............
............
800,000
100,000
2,800,000
300,000
(500,000) (100,000)
600,000
140,000
(230,000)
(50,000)
............
10,000
............
............
............
60,000
(150,000)
(90,000)
(300,000) (200,000)
............
............
(D2)
(D3)
(D4)
(D5)
(D6)
(D8)
Eliminations
and Adjustments
Dr.
Cr.
.............
............
.............
............
............. (D1) 20,000
............. (EL) 340,000
............. (D) 760,000
100,000
............
200,000
............
.............
............
110,000
............
.............
............
140,000
............
50,000
............
190,000
............
.............
............
.............
............
............. (D7) 10,000

............
(10,000) (EL) 10,000
............
ParSentinel ...................
............ (190,000) (EL) 190,000
............
............ (140,000) (EL) 140,000
............
(95,000)
............
.............
............
ParPurnell ..................... (3,655,000)
............
.............
............
............
.............
............
Totals................................
0
0
1,130,000
1,130,000
NCI .....................................................................................................................................
Totals...............................................................................................................................
Consolidated
Balance
Sheet
20,000
350,000
510,000
............
............
1,000,000
3,300,000
(600,000)
850,000
(280,000)
150,000
50,000
250,000
(240,000)
(500,000)
(10,000)
............
............
............
(95,000)
(3,655,000)
(1,100,000)
............
............
0

(EL)
(D)
Distribute excess.
(D1)
Inventory.
(D2)
Land.
(D3)
Buildings.
(D4)
Equipment.
(D5)
Patent.
(D6)
Computer software.
(D7)
Premium on bonds payable.
(D8)
Goodwill.
71
Ch. 2
PROBLEM 2-14
(1)
*Must at least be equal to fair value of net assets.
Company
Implied
Fair Value
$ 670,000
850,000
$(180,000)
Parent
Price
(80%)
$ 500,000
680,000
$(180,000)
NCI
Value
(20%)
$170,000*
170,000
$
0

Total equity ........................
Book value ................................
value ......................................
Company
Implied
Fair Value
$670,000
$ 10,000
190,000
140,000
$340,000
$330,000
Parent
Price
(80%)
$500,000
NCI
Value
(20%)
$170,000
$340,000
80%
$272,000
$340,000
20%
$ 68,000
$228,000
$102,000

$120,000 book value) ............
Land ($200,000 fair
$100,000 book value) ............
$200,000 net book value) ......
$90,000 net book value) ........
Patent ($150,000 fair $10,000
book value) ............................
fair $0 book value) ..............
($210,000 fair $200,000
book value) ............................
book value) ............................
Total ..................................
Adjustment
Worksheet
Key
$ (20,000)
credit D1
100,000
debit D2
200,000
debit D3
110,000
debit D4
140,000
debit D5
50,000
debit D6
(10,000)
credit D7
(60,000)
(180,000)
$ 330,000
credit D8
credit D9
72
Ch. 2

(2)

December 31, 2011
Cash ....................................
Inventory ..............................
Land .....................................
Buildings ..............................
Equipment ...........................
Patent ..................................
Goodwill ...............................
Bonds Payable ....................
ParSentinel ...................
Balance Sheet
Purnell
Sentinel
20,000
............
300,000
50,000
410,000
120,000
500,000
............
............
............
800,000
100,000
2,800,000
300,000
(500,000) (100,000)
600,000
140,000
(230,000)
(50,000)
............
10,000
............
............
............
60,000
(150,000)
(90,000)
(300,000) (200,000)
............
............
............
(10,000)
............
............
(190,000)
(140,000)
(D2)
(D3)
(D4)
(D5)
(D6)
(EL)
Eliminations
and Adjustments
Dr.
Cr.
.............
............
.............
............
............. (D1) 20,000
............. (EL) 272,000
............. (D) 228,000
100,000
............
200,000
............
.............
............
110,000
............
.............
............
140,000
............
50,000
............
............. (D8) 60,000
.............
............
.............
............
............. (D7) 10,000
8,000
............
(EL) 152,000
............
(EL) 112,000 (NCI) 102,000
Consolidated
Balance
NCI
Sheet
............
20,000
............
350,000
............
510,000
............
............
............
............
............ 1,000,000
............ 3,300,000
............ (600,000)
............
850,000
............ (280,000)
............
150,000
............
50,000
............
............
............ (240,000)
............ (500,000)
............
(10,000)
(2,000)
............
(38,000)
(130,000)
............
............

(83,000)
............
.............
............
............
(83,000)
ParPurnell ..................... (3,067,000)
............
.............
............
............ (3,067,000)
............
............. (D9) 180,000
............ (1,280,000)
Totals................................
0
0
872,000
872,000
............
............
NCI ..................................................................................................................................... (170,000) (170,000)
Totals..................................................................................................................................................
0
Eliminations:
(EL)
(D)
Distribute excess.
(NCI)
Adjust NCI to fair value (credit subsidiary retained earnings).
(D1)
Inventory.
(D2)
Land.
(D3)
Buildings.
(D4)
Equipment.
(D5)
Patent.
(D6)
Computer software.
(D7)
(D8)
Goodwill.
(D9)
Gain on acquisition (close to parent Retained Earnings).
73
Ch. 2
PROBLEM 2-15
(1)
Company
Implied
Fair Value

Goodwill ...........................................................
$1,187,500
850,000
$ 337,500
Parent
Price
(80%)
$950,000
680,000
$270,000
NCI
Value
(20%)
$237,500
170,000
$ 67,500

Total equity ........................
Book value ................................
value ......................................
Company
Implied
Fair Value
Parent
Price
(80%)
NCI
Value
(20%)
$1,187,500
$950,000
$237,500
$340,000
80%
$272,000
$340,000
20%
$ 68,000
$678,000
$169,500
10,000
190,000
140,000
$ 340,000
$ 847,500

$120,000 book value) ............
Land ($200,000 fair
$100,000 book value) ............
$200,000 net book value) ......
$90,000 net book value) ........
Patent ($150,000 fair
$10,000 book value) ..............
fair $0 book value) ..............
($210,000 fair $200,000
book value) ............................
Goodwill ($337,500 fair
$60,000 book value) ..............
Total ..................................
Adjustment
Worksheet
Key
$(20,000)
credit D1
100,000
debit D2
200,000
debit D3
110,000
debit D4
140,000
debit D5
50,000
debit D6
(10,000)
credit D7
277,500
$847,500
debit D8
74
Ch. 2

(2)

December 31, 2011
Cash ....................................
Inventory ..............................
Land .....................................
Buildings ..............................
Equipment ...........................
Patent ..................................
Goodwill ...............................
Bonds Payable ....................
ParSentinel ...................
Balance Sheet
Purnell
Sentinel
20,000
............
300,000
50,000
410,000
120,000
950,000
............
............
............
800,000
100,000
2,800,000
300,000
(500,000) (100,000)
600,000
140,000
(230,000)
(50,000)
............
10,000
............
............
............
60,000
(150,000)
(90,000)
(300,000) (200,000)
............
............
............
(10,000)
............
............
(190,000)
(140,000)
(D2)
(D3)
(D4)
(D5)
(D6)
(D8)
(EL)
Eliminations
and Adjustments
Dr.
Cr.
.............
............
.............
............
............. (D1) 20,000
............. (EL) 272,000
............. (D) 678,000
100,000
............
200,000
............
.............
............
110,000
............
.............
............
140,000
............
50,000
............
277,500
............
.............
............
.............
............
............. (D7) 10,000
8,000
............
(EL) 152,000
............
(EL) 112,000 (NCI) 169,500
Consolidated
Balance
NCI
Sheet
............
20,000
............
350,000
............
510,000
............
............
............
............
............ 1,000,000
............ 3,300,000
............ (600,000)
............
850,000
............ (280,000)
............
150,000
............
50,000
............
337,500
............ (240,000)
............ (500,000)
............
(10,000)
(2,000)
............
(38,000)
(197,500)
............
............

(92,000)
............
.............
............
............
(92,000)
ParPurnell ..................... (3,508,000)
............
.............
............
............ (3,508,000)
............
.............
............
............ (1,100,000)
Totals................................
0
0
1,149,500
1,149,500
............
............
NCI ..................................................................................................................................... (237,500) (237,500)
Totals..................................................................................................................................................
0
Eliminations:
(EL)
(D)
Distribute excess.
(NCI)
Adjust NCI to fair value (credit subsidiary Retained Earnings).
(D1)
Inventory.
(D2)
Land.
(D3)
Buildings.
(D4)
Equipment.
(D5)
Patent.
(D6)
Computer software.
(D7)
(D8)
Goodwill.
75
Ch. 2
APPENDIX PROBLEM
PROBLEM 2A-1
(1)

Goodwill ...........................................................
Gain on acquisition
Traded
Company
Implied
Fair Value
$240,000a
235,000
$ 5,000
Parent
Price
(60%)b
$144,000
141,000
$ 3,000
NCI
Value
(40%)c
$96,000
94,000
$ 2,000
Values are prior to acquisition (4,000 shares $60 market value).

Subsequent to acquisition, Untraded Company is the parent with 6,000 shares out of a
total of 10,000 shares (6,000 newly issued + 4,000 prior shares). Untraded Company has
a 0% ownership interest in the Traded Company.
c
Prior to acquisition, this represents 100% ownership of Traded Company; subsequent to
acquisition, these holders of 4,000 shares of Traded Company become the 40% NCI.
b

Traded
Company
Implied
Fair Value
Total equity ........................
Book value ................................
value ......................................
$240,000
4,000
96,000
15,000
$115,000
Parent
Price
(60%)
NCI
Value
(40%)
$144,000
$ 96,000
$115,000
60%
$ 69,000
$115,000
40%
$ 46,000
$ 75,000
$ 50,000
$125,000

$100,000 book value) ............
$20,000 book value) ..............
Goodwill ....................................
Total ..................................
Adjustment
Worksheet
Key
$100,000
debit D1
20,000
5,000
$125,000
debit D2
debit D3
76
Ch. 2
Problem 2A-1, Concluded

Traded Company and Subsidiary Untraded Company
January 1, 2011
Eliminations
Consolidated
Balance Sheet
and Adjustments
Balance
Untraded
Traded
Dr.
Cr.
NCI
Sheet
Current assets ........................
10,000
5,000
.............
............
............
15,000
Investment in Untraded
Company ............................. ............
144,000
............. (EL) 69,000
............
............
............
............
............. (D)
75,000
............
............
Building ................................... 150,000
100,000
(D1) 100,000
............
............
350,000
Equipment .............................. 100,000
20,000
(D2) 20,000
............
............
140,000
Goodwill .................................. ............
............
(D3)
5,000
............
............
5,000
Long-Term Liabilities ..............
(5,000)
(10,000)
.............
............
............
(15,000)
Common StockUntraded ....
(5,000)
............
(adj)
5,000
............
............
............
Par ValueUntraded .......... (115,000)
............
(adj) 115,000
............
............
............
Retained EarningsUntraded (135,000)
............
.............
............
............ (135,000)
Common StockTraded ........ ............
(10,000) (EL)
2,400
............
(7,600)
............
(4,000 + 6,000)
Continuing Equity of Traded
Company ............................. ............
............
............. (adj)
6,000
............
(6,000)
Par ValueTraded ............. ............ (234,000) (EL) 57,600
............ (176,400)
............
(96,000 + 144,000 6,000)
Continuing Equity of
Traded Company ................ ............
............
............. (adj) 114,000
............ (114,000)
Retained EarningsTraded ... ............
(15,000) (EL)
9,000 (NCI) 50,000
(56,000)
............
Totals...................................
0
0
314,000
314,000
............
............
NCI ..................................................................................................................................... (240,000) (240,000)
Totals..................................................................................................................................................
0
(EL)
Eliminate investment account and entries to Traded equity made to record the acquisition.
(D)/(NCI) Distribute fair market value adjustment and NCI adjustment.
(D1)
Increase building, $100,000.
(D2)
Increase equipment, $20,000.
(D3)
Record goodwill.
(adj)
Assign Untraded Company equity to paid-in capital of Traded Company.
77

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CHAPTER 2

UNDERSTANDING THE ISSUES

(d) Jacobson has a controlling level of

Net Assetsmarked up 300,000 ($800,000 fair value $500,000 book value)

Net Assetsmarked up $300,000 ($800,000 fair value $500,000 book value)

Adjustment of identifiable accounts:

(2) Investment in Doyle ................................................................

Value Analysis Schedule

(a) Cash ................................................................................

*Cash may be shown as a net credit of $510,000.

(a) Investment in Plastic.............................................

(b) Investment in Plastic appears as a long-term investment on Glasss unconsolidated

Value Analysis Schedule

Acquisition Costs Expense......................................................

Exercise 2-5, Concluded

Inventory ($250,000 fair

(3) Elimination entries:

Value Analysis Schedule

Exercise 2-6, Concluded

Adjustment of identifiable accounts:

Inventory ($215,000 fair

(2) Elimination entries:

Value Analysis Schedule

Determination and Distribution of Excess Schedule

Fair value of subsidiary .............

Adjustment of identifiable accounts:

Exercise 2-7, Continued

Value Analysis Schedule

*4,000 shares $45.

Adjustment of identifiable accounts:

Exercise 2-7, Continued

(c) NCI = 20% of fair value of net tangible assets

Value Analysis Schedule

Company fair value ..........................................

*Equal to 20% of fair value of net identifiable assets.

Adjustment of identifiable accounts:

Exercise 2-7, Concluded

(b) NCI = 4,000 shares at $45

(c) NCI = 20% of fair value of net tangible assets

*Must at least equal fair value of assets.

Adjustment of identifiable accounts:

Exercise 2-8, Concluded

Value Analysis Schedule

Determination and Distribution of Excess Schedule

Exercise 2-9, Concluded

Land ($250,000 fair $200,000

(3) Adjustments on Craig books:

(4) Elimination entries:

Value Analysis Schedule

Values are prior to acquisition (200 shares $25 market value).

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Fixed assets ($3,000 fair

Value Analysis Schedule

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Inventory ($140,000 fair

Problem 2-1, Concluded

Adam Company and Subsidiary Sampson Company

Value Analysis Schedule

Determination and Distribution of Excess Schedule

Fair value of subsidiary .............