View the step-by-step solution to:

Given Data P03-26:

Palm Co. acquired 100 percent of the voting stock of Storm Company on January 1, 2003, by issuing 10,000 shares of its $10 a par value common stock (having fair value of $13. per share). Palm also paid $10,000 in acquisition fees to lawyers and investments analysis. As of that date, Storm had stockholders' equity totaling $105,000. Land shown on Storm's accounting records was undervalued by $10,000 Equipment (with a five year life) was undervalued by $5,000. A secret formula developed by Storm was appraised at $20,000 with an estimated life of 20 years.
Following are the separate financial statements for the two companies for the year ending December 31, 2007. Credit balances are indicated by parentheses.

a- How was the $66,000 balance in the Subsidiary Earnings account derived?
b- Prepare a worksheet to consolidate the financial information for these two companies. (I have done most of the work-see attached spreadsheet p3-29 tab)

c- How would Storm's individual financial records fifer if the push-down method of accounting had been applied?.

Given Data P03-26: Mergaronite Hill 12/31/2013 12/31/2013 Revenues $600,000 $250,000 Cost of goods sold 280,000 100,000 Depreciation expense 120,000 50,000 Investment income not given NA Retained earnings, 1/1/13 900,000 600,000 Dividends paid 130,000 40,000 Current assets 200,000 690,000 Land 300,000 90,000 Buildings (net) 500,000 140,000 Equipment (net) 200,000 250,000 Liabilities 400,000 310,000 Common stock 300,000 40,000 Additional paid-in capital 50,000 160,000 Mergaronite's $10 par common stock issued 7,000 for acquisition of Hill - number of shares Fair market value of Mergaronite stock - per share $100 Hill's land undervalued by 20,000 Hill's buildings overvalued by 30,000 Hill's equipment undervalued by 60,000 Remaining life of buildings - years 10 Remaining life of equipment - years 5 Appraised value of Hill's customer list $100,000 Remaining life of Hill's customer list - years 20
Background image of page 1
Student Name: Class: Problem 03-26 a. Fair Value Allocation and Annual Amortization Annual Life Excess Allocation (years) Amortizations Land $20,000 - Buildings (30,000) 10 (3,000) Equipment 60,000 5 12,000 Customer list 100,000 20 5,000 Total $14,000 Correct! Account Name Balance Explanation Revenues 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 Amortization expense 5,000 Amortization expense is the customer list Equiipment is completely amortozed at the end of the year Building was over valued Buildings (net) 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 Equipment (net) 450,000 Sum of the equipment (net) of both companies Equipment under valuation is fully amortized 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 Credit Consolidation Entry S Common stock (Hill) 40,000 Correct! Additional paid-in capital (Hill) 160,000 Correct! Retained earnings, 1/1 600,000 Correct! Investment in Hill 800,000 Correct! (To eliminate beginning stockholders' equity of subsidiary) Consolidation Entry A Land 20,000 Correct! Equipment (net) 12,000 Correct! Customer list (net) 80,000 Correct! Buildings (net) 18,000 Correct! Investment in Hill 94,000 Correct! (To record unamortized allocation balances as of beginning of current year) Consolidation Entry I Investment income 86,000 Correct! Investment in Hill 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 40,000 Correct! Dividends paid 40,000 Correct! (To remove intercompany dividend payments) Consolidation Entry E Amortization expense 5,000 Correct! Depreciation expense 9,000 Correct! Buildings 3,000 Correct! Equipment 12,000 Correct! Customer list 5,000 Correct! (To recognize excess amortizations for period)
Background image of page 2
Show entire document
Sign up to view the entire interaction

Top Answer

Dear Student, Please find... View the full answer


Given Data P03-26: Revenues
Cost of goods sold
Depreciation expense
Investment income
Retained earnings, 1/1/13
Dividends paid
Current assets
Buildings (net)
Equipment (net)

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.


Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online