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Given Data P03-26:
Revenues
Cost of goods sold
Depreciation expense
Investment income
Retained earnings, 1/1/13
Dividends paid
Current assets
Land
Buildings (net)
Equipment (net)
Liabilities...Given Data P03-26:
Revenues
Cost of goods sold
Depreciation expense
Investment income
Retained earnings, 1/1/13
Dividends paid
Current assets
Land
Buildings (net)
Equipment (net)
Liabilities
Common stock
Additional paid-in capital
Mergaronite's $10 par common stock issued
for acquisition of Hill - number of shares
Fair market value of Mergaronite stock - per share
Hill's land undervalued by
Hill's buildings overvalued by
Hill's equipment undervalued by
Remaining life of buildings - years
Remaining life of equipment - years
Appraised value of Hill's customer list
Remaining life of Hill's customer list - years
Mergaronite
12/31/2013
$600,000
280,000
120,000
not given
900,000
130,000
200,000
300,000
500,000
200,000
400,000
300,000
50,000
Hill
12/31/2013
$250,000
100,000
50,000
NA
600,000
40,000
690,000
90,000
140,000
250,000
310,000
40,000
160,000
7,000
$100
20,000
30,000
60,000
10
5
$100,000
20
Student Name:
Class:
Problem 03-26
a. Fair Value Allocation and Annual Amortization
Allocation
$20,000 (30,000)
60,000
100,000
Land
Buildings
Equipment
Customer list
Total
Annual
Excess
Amortizations
Life
(years)
10
5
20
(3,000)
12,000
5,000
$14,000
Correct!
Account Name
Revenues
Balance
Explanation
850,000 Consolidated revenues is the total of the revenue less
intercompany transactions of which there are none
Cost of goods sold
380,000 Consolidated COGS is the total of the COGS of both company
less intercompany transactions of which there are none
Depreciation expense
179,000 Consolidated depreciation expense is the depreciation expense
of both companies including the additional depreciation for
building and equipment
5,000 Amortization expense is the customer list
Equiipment is completely amortozed at the end of the year
Building was over valued
625,000 Sum of the buildings (net) of both companies plus the
unamortized overvaluation od building 30,000/10 years x 5 years
5 years is 10 years life of building less 5 years since merger
450,000 Sum of the equipment (net) of both companies
Equipment under valuation is fully amortized
Amortization expense
Buildings (net)
Equipment (net)
Customer list
75,000 Unamortized fair value of the customer list
100,000/20 years x (20 years - 5 years)
Common stock
300,000 Always equal to parent's
Additional paid-in capital
50,000 Always equal to parent's
Part b. Why can consolidated totals be determined without knowing
the consolidation method used?
If 100% ownership of the subsidiary, consolidated totals can be
determined without knowing the consolidation method.
In this case the consolidation method has no impact on the consolidated totals.
Part c. If the equity method is used by the parent, what
consolidation entries would be used?
MERGARONITE COMPANY
General Journal
Account
Debit
Consolidation Entry S
Common stock (Hill)
Additional paid-in capital (Hill)
Retained earnings, 1/1
Investment in Hill
Credit
40,000 Correct!
160,000 Correct!
600,000 Correct!
800,000 Correct!
(To eliminate beginning stockholders' equity of subsidiary)
Consolidation Entry A
Land
Equipment (net)
Customer list (net)
Buildings (net)
Investment in Hill
20,000 Correct!
12,000 Correct!
80,000 Correct!
18,000 Correct!
94,000 Correct!
(To record unamortized allocation balances as of beginning of current year)
Consolidation Entry I
Investment income
Investment in Hill
86,000 Correct!
86,000 Correct!
(To remove equity income recognized during year-equity method accrual
[based on subsidiary's income] less amortization for the year)
Consolidation Entry D
Investment in Hill
Dividends paid
40,000 Correct!
40,000 Correct!
(To remove intercompany dividend payments)
Consolidation Entry E
Amortization expense
Depreciation expense
Buildings
Equipment
Customer list
(To recognize excess amortizations for period)
5,000 Correct!
9,000 Correct!
3,000 Correct!
12,000 Correct!
5,000 Correct!
Palm Company and Storm Company
Fair Value allocation and Annual Amortization
Storm fair value
Book value of subsidiary (Storm)
Excess their value over book value
Assigned to specific accounts
based on fair market value:
Land
Buildings/Equipment
Secret Formula
Total
$140,000
$(105,000)
$35,000
Life
(years)
10,000 5,000
20,000
35,000
2009
5
20
Annual Excess Amortization
2010
2011
-
1,000
1,000
1,000
1,000
2012
-
1,000
1,000
1,000
1,000
Balance
1/1/2013
1,000
16,000
17,000
c)
Entry S
Palm Company and Consolidated Subsidiary
Consolidation Worksheet
For Year Ending December 31, 2013
Accounts
Income Statement
Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Equity in subsidiary earnings
Net income
Statement of Retained Earnings
Retained earnings, 1/1
Net income
Dividends paid
Retained earnings, 12/31
Balance Sheet
Current assets
Investment in Storm Co.
Palm
Company
Storm
Company
Consolidation Entries
Debit
Credit
Consolidated
Totals
-
$(485,000)
160,000
130,000
(66,000)
(68,000)
(659,000)
Entry A
(98,000)
(261,000)
(To Eliminate subsiderary equity balances)
$(190,000)
70,000
52,000
(261,000)
Discription
DEBIT
CREDIT
Common Stock - Subsiderary
60,000
APIC- Subsiderary
5,000
R/E Beg (subsiderary) 98,000
Investment in Subsiderary
163,000
Land
10,000
Buidings and Eq (net) 1,000
Formula
16,000
Invesment in Subsiderary
(68,000)
(Adjust subsiderary assets and liabilities to FV)
-
Entry I
175,500
40,000
(744,500)
(126,000)
268,000
216,000
27,000
75,000
Equity in subsiderary income
66,000
Investment in subsiderary
66,000
(Eliminate equity in subsiderary)
-
Entry D
Investment in subsiderary
40,000
Dividends-subsiderary
40,000
-
(Eliminate subsiderary dividends)
Secret formula
Land
Buildings & equipment (net)
Total assets
Current liabilities
Long-Term liabilities
Common stock
Additional paid-in capital
Retained earnings, 12/31/13
Total liabilities & equity
b)
Entry E
427,500
713,000
58,000
161,000
1,624,500
294,000
(110,000)
(80,000)
(600,000)
(90,000)
(744,500)
(19,000)
(84,000)
(60,000)
(5,000)
(126,000)
(1,624,500)
(294,000)
-
-
Amoritization expense 1,000
Depreciation expense 1,000
Building/Equipment (net)
Formula
1,000
1000
640000
15000
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