Ch5bBW - Chapter 5 b-1 Setup for a consolidation occurring...

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Setup for a consolidation occurring prior to 15 Dec 2008 using PARTIAL REVALUTAION Parent paid $3,200 to acquire 80% of Sub. On the acquisition date, the remaining 20% of shares had a market value of $700 (which is not relevant). The only indentifiable intangible acquired in the acquisition was a not-to-compete contract valued at $500 with a 5-year term. None of the assets or liabilities on Sub's books at acquisition were under- or over-valued. At the end of year one, Sub reported $800 in earnings, and goodwill was found to be impaired by $250. At end of year two, Sub reported $1,000 in earnings, and there was no goodwill impairment. See next page for parent and sub immediately after acquisition. Acquisition: Acquisition: End Year One: Cash price paid 3,200 $ NCI at acquisition: Total CI NCI Implied Fair Value of Sub (($3,200/80%)*20%) 800 Book value of Sub 2,400 $ Reported Net Inc. 800 $ 640 $ 160 $ Total Fair Value 4,000 No share of writeups - Adjustments: Book value of Sub 2,400 2,400 NTC ($500/5) (80) (80) Fair value in excess of book 1,600 X 20% Goodwill (200) (200) NTC Contract (5-year) 500 480 Share of NI 520 $ 360 $ 160 $ Total goodwill 1,100 $ Actual NCI goodwill (No - NCI in Net Assets 480 $ Adjustments Split: Goodwill to CI: NTC 100% 100% 0% Acquisition price 3,200 $ Goodwill 100% 100% 0% Less CI share 2,320 CI goodwill 880 $ End Year Two: Total CI NCI Goodwill to NCI: Reported Net Inc. 1,000 $ 800 $ 200 $ Total goodwill 1,100 $ Adjustments: Less: CI goodwill 880 NTC ($500/5) (80) (80) Theoretical NCI goodwill 220 $ Share of NI 920 $ 720 $ 200 $ Actual NCI goodwill (None ever recognized) - $ Chapter 5 b--1 AMIS 624 David E. Wallin copyright 2009 All Rights Reserved
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Date of Acquisition Parent Sub Adjustments Consolidated 1 Jan 20x1 Sales Old GAAP Partial Revaluiation Cost of Sales Oper. Expenses Equity in S Income Consolidated Net Inc. - - NCI in Net Income Net Income/Loss Parent - - Ret. Earnings, beg. 4,600 1,400 1,400 j 4,600 Net Income/Loss - - Dividends Declared Ret. Earnings, end 4,600 1,400 1,400 - 4,600 Current Assets 1,150 1,100 2,250 Patents 700 700 Property, P, E, net 5,000 2,400 7,400 Investment in S 3,200 3,200 j Covenant NTC 400 j 400 Goodwill 880 j 880 Current Liabilities 450 300 750 L-T Debt 2,000 800 2,800 NCI in Net Assets 480 j 480 Common Stock 3,000 1,000 1,000 j 3,000 Ret. Earnings, end 4,600 1,400 1,400 - 4,600 10,050 10,050 3,500 3,500 3,680 3,680 11,630 11,630 Chapter 5 b--2 AMIS 624 David E. Wallin copyright 2009 All Rights Reserved
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End of Year One Parent Sub Adjustments Consolidated 31 Dec 20x1 Sales 8,000 2,300 10,300 Cost of Sales 6,000 900 6,900 Oper. Expenses 1,000 600 80 n 1,680 GW Impairment Loss 200 n 200 Equity in S Income 360
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This note was uploaded on 08/06/2011 for the course AMIS 624 taught by Professor Wallin during the Summer '11 term at Ohio State.

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Ch5bBW - Chapter 5 b-1 Setup for a consolidation occurring...

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