Chap005_Day2&3_Classproblems_Solu

Chap005_Day2&3_Classproblems_Solu - Solutions to...

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1 E5-12 Differential Assigned to Amortizable Asset a. Lancaster Company’s common stock, January 1, 20X1 $120,000 Lancaster Company’s retained earnings, January 1, 20X1 380,000 Book value of Lancaster’s net assets $500,000 Proportion of stock acquired x .90 Book value of Lancaster's shares purchased by Major Corporation $450,000 Excess of acquisition price over book value 36,000 Fair value of consideration given $486,000 Add: Share of Lancaster's net income ($60,000 x .90) 54,000 Less: Amortization of patents ($40,000 / 5) x .90 (7,200) Dividends paid by Lancaster ($20,000 x .90) (18,000 ) Balance in investment account, December 31, 20X1 $514,800 b. Eliminating entries, December 31, 20X1: E(1) Income from Subsidiary 46,800 Dividends Declared 18,000 Investment in Lancaster Company Stock 28,800 Eliminate income from subsidiary: $46,800 = ($60,000 x .90) – ($8,000 x .90) E(2) Income to Noncontrolling Interest 5,200 Dividends Declared 2,000 Noncontrolling Interest 3,200 Assign income to noncontrolling interest: $5,200 = ($60,000 - $8,000) x .10 $2,000 = $20,000 x .10 E(3) Common Stock — Lancaster Company 120,000 Retained Earnings, January 1 380,000 Differential 40,000 Investment in Lancaster Company Stock 486,000 Noncontrolling Interest 54,000 Eliminate investment balance: $40,000 = ($486,000 + $54,000) - $500,000 E(4) Patents 40,000 Differential 40,000 Assign differential. E(5) Amortization Expense 8,000 Patents 8,000 Amortize differential related to patents.
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2 E5-14 Consolidation Following Three Years of Ownership a. Computation of increase in value of patents: Fair value of consideration given by Knox $277,500 Fair value of noncontrolling interest 185,000 Total fair value $462,500 Book value of Conway stock (400,000 ) Excess of fair value over book value $ 62,500
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Chap005_Day2&3_Classproblems_Solu - Solutions to...

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