02 Fischer10e SM Ch02 Final

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CHAPTER 2
UNDERSTANDING THE ISSUES
1. (a) Johnson has a passive level of owner- (d) Johnson has a controlling level of own-
ship and in future periods will record ership and in future periods will add
dividend income of only 10% of Bick- 100% of Bicklers net income to its own
lers declared dividends. Johnson will net income. All (100%) of Bicklers no-
also have to adjust the investment to minal account balances will be added
market value at the end of each period. to Johnsons nominal account bal-
(b) Johnson has an influential level of ances. This will result in consolidated
ownership and in future periods will net income, followed by a distribution to
record investment income of 30% of the noncontrolling interest equal to 20%
Bicklers net income. Any dividends de- of Bicklers income. Any dividends de-
clared by Bickler will reduce the in- clared by Bickler will not affect John-
vestment account, but will not affect the sons income.
investment income amount.
(c) Johnson has a controlling level of own- 2. The elimination process serves to make the
ership and in future periods will add consolidated financial statements appear
100% of Bicklers net income to its own as though the parent had purchased the
net income. Bicklers nominal account net assets of the subsidiary. The invest-
balances will be added to Johnsons ment account and the subsidiary equity ac-
nominal accounts. Any dividends de- counts are eliminated and replaced by the
clared by Bickler will not affect John- subsidiarys net assets.
sons income.
3. (a) Company Parent NCI

Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value...................................... $900,000 $900,000 N/A
Fair value of net assets excluding goodwill . 600,000 600,000
Goodwill ....................................................... $300,000 $300,000
Net Assetsmarked up $200,000 ($600,000 fair value $400,000 book value)
Goodwill$300,000 ($900,000 $600,000)
(b) Company Parent NCI
Implied Price Value
Company fair value...................................... $900,000 $720,000 $180,000
Fair value of net assets excluding goodwill . 600,000 480,000 120,000
Goodwill ....................................................... $300,000 $240,000 $ 60,000
Net Assetsmarked up $200,000 ($600,000 fair value $400,000 book value)
Goodwill$300,000 ($900,000 $600,000)
The NCI would be valued at $180,000 (20% of the implied company value) to allow the full rec-
ognition of fair values.
33
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Implied Price Value
Company fair value...................................... $1,000,000 $1,000,000 N/A
Goodwill ....................................................... $ 150,000 $ 150,000
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
Implied Price Value
Company fair value...................................... $ 500,000 $ 500,000 N/A
Gain on acquisition ...................................... $ (350,000) $ (350,000)
$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

Implied Price Value
Company fair value...................................... $1,000,000*$800,000 $200,000
Goodwill ....................................................... $ 150,000 $120,000 $ 30,000
*$800,000/80% = $1,000,000
$800,000 parents price (80% $350,000 net book value) = $520,000
NCI adjustment, $200,000 (20% $350,000 net book value) = 130,000
Total adjustment to be allocated ................. = $650,000 as follows:
Current assets ............................................ $ 50,000
Fixed assets ............................................... 450,000
Goodwill ....................................................... 150,000
$650,000
34

Implied Price Value
Company fair value...................................... $770,000** $600,000 $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) = $320,000
NCI adjustment, $170,000 (20% $350,000 net book value) = 100,000
Total adjustment to be allocated ................. = $420,000 as follows:
Current assets ............................................ $ 50,000
Fixed assets ............................................... 450,000
Gain on acquisition ...................................... (80,000)
$420,000
6. Company Parent NCI

Implied Price Value
Company fair value...................................... $1,000,000*$800,000 $200,000
Goodwill ....................................................... $ 200,000 $120,000 $ 80,000
*$800,000/80% = $1,000,000
The NCI will be valued at $200,000, which is 20% of the implied company value. The NCI ac-
count 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.
35
Ch. 2Exercises
EXERCISES
EXERCISE 2-1
Solara Corporation
Pro Forma Income Statement
Ownership Levels
10% 20% 70%
Sales ........................................................................ $640,000 $640,000 $1,010,000
Cost of goods sold ................................................... 300,000 300,000 530,000
Gross profit .............................................................. $340,000 $340,000 $ 480,000
Selling and administrative expenses ........................ 120,000 120,000 195,000
Operating income..................................................... $220,000 $220,000 $ 285,000
Dividend income (10% $15,000 dividends)........... 1,500
Investment income (20% $65,000 reported
income) .............................................................. 13,000
Net income ............................................................... $221,500 $233,000 $ 285,000
Noncontrolling interest (30% $65,000 reported
income) .............................................................. 19,500
Controlling interest ................................................... $ 265,500
EXERCISE 2-2
Company Parent NCI

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

Accounts Receivable......................................................... 70,000
Inventory ........................................................................... 100,000
Property, Plant, and Equipment ($270,000 + $20,000) ..... 290,000
Goodwill ............................................................................ 230,000
Current Liabilities ......................................................... 80,000
Bonds Payable ............................................................ 100,000
Cash ............................................................................ 530,000*
*Cash may be shown as a net credit of $510,000.
36
Ch. 2Exercises
Exercise 2-2, Concluded
(b) Glass Company

Balance Sheet
Assets
Current assets:
Cash ................................................................ $ 30,000
Accounts receivable ........................................ 120,000
Inventory.......................................................... 150,000 $ 300,000
Property, plant, and equipment (net) ..................... 520,000
Goodwill ................................................................ 230,000
Total assets ........................................................... $1,050,000
Liabilities and Stockholders Equity

Liabilities:
Current liabilities .............................................. $220,000
Bonds payable................................................. 350,000 $ 570,000
Stockholders equity:
Common stock ($100 par) ............................... $200,000
Retained earnings ........................................... 280,000 480,000
Total liabilities and stockholders equity ................ $1,050,000
2. (a) Investment in Plastic ............................................. 530,000

Cash ................................................................ 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).
EXERCISE 2-3
Company Parent NCI

Implied Price Value
Company fair value .................................................. To be determined N/A
Fair value of net assets excluding goodwill .............. $560,000* $560,000
Goodwill
Gain on acquisition
*$370,000 net asset book value + $40,000 inventory increase + $50,000 land increase +
$100,000 building increase = $560,000 fair value
(1) Goodwill will be recorded if the price is above $560,000.

(2) A gain will be recorded if the price is below $560,000.
37
Ch. 2Exercises
EXERCISE 2-4
(1) Investment in Pail Inc. .............................................................. 950,000

Cash ..................................................................................... 950,000
Acquisition Costs Expense ....................................................... 10,000
Cash ..................................................................................... 10,000
(2) Company Parent NCI

Implied Price Value
Company fair value ........................................... $950,000 $950,000 N/A
Fair value of net assets excluding goodwill ...... 850,000* 850,000
Goodwill ............................................................ $100,000 $100,000
*$700,000 net book value + $50,000 inventory increase + $100,000 depreciable fixed
assets increase = $850,000 fair value
Determination and Distribution of Excess Schedule

Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Fair value of subsidiary .............. $950,000 $950,000 N/A
Less book value of interest acquired:
Common stock, ($10 par) ....... $300,000
Paid-in capital in excess of par 380,000
Retained earnings .................. 20,000
Total stockholders equity ... $700,000 $700,000
Interest acquired..................... 100%
Book value ................................. $700,000
Excess of fair value over book
value ....................................... $250,000 $250,000
Adjustment of identifiable accounts:

Worksheet
Adjustment Key
Inventory ($250,000 fair
$200,000 book value) ............. $ 50,000 debit D1
Depreciable fixed assets
($700,000 fair $600,000
book value) ............................. 100,000 debit D2
Goodwill ..................................... 100,000 debit D3
Total ................................... $250,000
38
Ch. 2Exercises
Exercise 2-4 Concluded
(3) Elimination entries:

Common Stock ($10 par)Pail ................................................ 300,000
Paid-In Capital in Excess of ParPail...................................... 380,000
Retained EarningsPail........................................................... 20,000
Investment in Pail Inc. .......................................................... 700,000
Inventory ................................................................................... 50,000
Depreciable Fixed Assets ......................................................... 100,000
Goodwill .................................................................................... 100,000
Investment in Pail Inc. .......................................................... 250,000
EXERCISE 2-5

Implied Price Value
Company fair value ........................................... $ 700,000 $ 700,000 N/A
Fair value of net assets excluding goodwill ...... 885,000 885,000
Goodwill
Gain on acquisition ........................................... $(185,000) $(185,000)

Company Parent NCI
Implied Price Value
Price paid for investment ........... $700,000 $700,000 N/A
Common stock ($5 par) .......... $200,000
Total equity ......................... $675,000 $675,000
Book value ................................. $675,000
value ....................................... $ 25,000 $ 25,000
39
Ch. 2Exercises

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

Common Stock ($5 par)Genall.............................................. 200,000
Paid-In Capital in Excess of ParGenall ................................. 300,000
Retained EarningsGenall ...................................................... 175,000
Investment in Genall Company ............................................ 675,000
Inventory ................................................................................... 15,000
Property, Plant, and Equipment ................................................ 200,000
Computer Software ................................................................... 5,000
Gain on Acquisition .............................................................. 185,000
Premium on Bonds Payable ................................................. 10,000
Investment in Genall Company ............................................ 25,000
EXERCISE 2-6

Implied Price Value
Company fair value ........................................... $900,000* $720,000 $180,000**
Fair value of net assets excluding goodwill ...... 820,000 656,000 164,000
Goodwill ............................................................ $ 80,000 $ 64,000 $ 16,000
*$720,000/80% = $900,000
**$900,000 20% = $180,000
40
Ch. 2Exercises

Company Parent NCI
Implied Price Value
Fair value of subsidiary .............. $900,000 $720,000 $180,000
Common stock ($5 par) .......... $100,000
Total equity ......................... $500,000 $500,000 $500,000
Interest acquired..................... 80% 20%
Book value ................................. $400,000 $100,000
value ....................................... $400,000 $320,000 $ 80,000

Worksheet
Adjustment Key
$200,000 book value) ............. $100,000 debit D1
Land ($200,000 fair
$100,000 book value) ............. 100,000 debit D2
Building ($600,000 fair
Equipment ($200,000 fair
$230,000 book value) ............. (30,000) credit D4
Goodwill ..................................... 80,000 debit D5
Total ................................... $400,000

Common Stock ($5 par)Cobalt (80%) ................................... 80,000
Paid-In Capital in Excess of ParCobalt (80%)....................... 120,000
Retained EarningsCobalt (80%)............................................ 200,000
Investment in Cobalt Company ............................................ 400,000
Inventory ................................................................................... 100,000
Land .......................................................................................... 100,000
Building ..................................................................................... 150,000
Goodwill .................................................................................... 80,000
Equipment ............................................................................ 30,000
Investment in Cobalt Company (excess remaining) ............. 320,000
Noncontrolling Interest (to adjust to fair value) ..................... 80,000
41
Ch. 2Exercises
EXERCISE 2-7

Implied Price Value
Company fair value ........................................... $646,000 $512,000 $134,000*
Gain on acquisition ........................................... $ (24,000) $ (24,000) N/A
*must at least equal fair value of assets

Company Parent NCI
Implied Price Value
Price paid for investment ........... $646,000 $512,000 $134,000
Common stock ($5 par) .......... $ 50,000
Total equity ......................... $550,000 $550,000 $550,000
Book value ................................. $440,000 $110,000
value ....................................... $96,000 $ 72,000 $ 24,000

Worksheet
Adjustment Key
Property, plant and equipment
($500,000 fair $400,000
Goodwill ($0 fair $100,000
book value) ............................. $(100,000) credit D3
Total ................................... $ 96,000
42
Ch. 2Exercises

Common Stock ($5 par) (80%) ................................................. 40,000
Paid-In Capital in Excess of Par (80%)..................................... 104,000
Retained Earnings (80%).......................................................... 296,000
Investment in Sundown Company ....................................... 440,000
Inventory ................................................................................... 120,000
Property, Plant, and Equipment ................................................ 100,000
Goodwill ............................................................................... 100,000
Gain on Acquisition (Venus retained earnings) .................... 24,000
Investment in Sundown Company (excess remaining) ........ 72,000
Noncontrolling Interest (to adjust to fair value) ..................... 24,000
EXERCISE 2-8

Implied Price Value
Company fair value ........................................... $450,000 $360,000* $90,000
Goodwill ............................................................ $ 60,000 $ 48,000 $12,000
*1,000 prior shares included at $45 ($315,000/7,000 shares) per share, the market value
on 1/1/X6.

Company Parent NCI
Implied Price Value
Fair value of subsidiary .............. $450,000 $360,000 $ 90,000
Common stock ($10 par) ........ $100,000
Total equity ......................... $340,000 $340,000 $340,000
Book value ................................. $272,000 $ 68,000
value ....................................... $110,000 $ 88,000 $ 22,000
43
Ch. 2Exercises

Worksheet
Adjustment Key
Goodwill ..................................... 60,000 debit D2
Total ................................... $110,000
(2) Investment in Doyle .................................................................. 315,000

Cash ..................................................................................... 315,000
Investment in Doyle (1,000 $45) ............................................ 45,000
Available-for-Sale Investment .............................................. 40,000
Unrealized Gain on Investment ............................................ 5,000
Note: Applicable allowance for market value adjustment would also be reversed.
EXERCISE 2-9
(1) Investment in Craig Company .................................................. 950,000

Cash ..................................................................................... 950,000

Implied Price Value
Fair value of net assets excluding goodwill ...... 900,000
Goodwill ............................................................ $ 50,000

Company Parent NCI
Implied Price Value
Common stock ($10 par) ........ $300,000
Total equity ......................... $720,000 $720,000
Book value ................................. $720,000
value ....................................... $230,000 $230,000
44
Ch. 2Exercises

Worksheet
Adjustment Key
Land ($250,000 fair $200,000
book value) ............................. $ 50,000 debit D1
Discount on bonds payable
($280,000 fair $300,000
Deferred tax liability ($40,000
fair $50,000 book value) ...... 10,000 debit D4
Goodwill ..................................... 50,000 debit D5
Total ....................................... $230,000
(3) Adjustments on Craig books:

Land .......................................................................................... 50,000
Building ..................................................................................... 100,000
Discount on Bonds Payable...................................................... 20,000
Goodwill .................................................................................... 50,000
Deferred Tax Liability ................................................................ 10,000
Retained Earnings .................................................................... 420,000
Paid-In Capital in Excess of Par ........................................... 650,000

Common Stock ......................................................................... 300,000
Paid-In Capital in Excess of Par ............................................... 650,000
Investment in Craig Company .............................................. 950,000
45
Ch. 2Exercises
APPENDIX EXERCISE
EXERCISE 2A-1
Public
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (60%)b (40%)c
Company fair value .................................................. $5,000a $3,000 $2,000
Fair value of net assets excluding goodwill .............. 3,000 1,800 1,200
Goodwill ................................................................... $2,000 $1,200 $ 800
a
Values are prior to acquisition (200 shares $25 market value).
b
Subsequent to acquisition, Private Company is the parent with 60% ownership; prior to acqui-
sition, Private Company has 0% ownership of Public Company.
c
Prior to acquisition, this represents 100% ownership of Public Company; subsequent to acqui-
sition, these holders of 100 shares of Public Company become the 40% NCI.

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

Worksheet
Adjustment Key
Fixed assets ($3,000 fair
$2,000 book value)...................... $1,000 debit D1
Goodwill ............................................ 2,000 debit D2
Total ...................................... $3,000
46
Ch. 2Problems
PROBLEMS
PROBLEM 2-1
(1) Investment in Duke Company................................................... 630,000*

Common Stock ($10 par) ..................................................... 180,000
*18,000 shares $35
Acquisition Expense (close to retained earnings) ..................... 25,000
Cash ..................................................................................... 25,000

Implied Price Value
Goodwill ............................................................ $230,000 $230,000

Company Parent NCI
Implied Price Value
Common stock ($10 par) ........ $200,000
Total equity ......................... $340,000 $340,000
Book value ................................. $340,000
value ....................................... $290,000 $290,000

Worksheet
Adjustment Key
$60,000 book value) ............... $ 5,000 debit D1
Land ($100,000 fair $40,000
Goodwill ..................................... 230,000 debit D5
Total ................................... $290,000
47
Ch. 2Problems
Problem 2-1 Concluded
(3) Rose Company and Subsidiary Duke Company

Consolidated Balance Sheet
July 1, 20X6
Assets
Current assets:
Other assets ......................................................................... $ 95,000*
Inventory (including $5,000 adjustment) .............................. 185,000
$ 280,000
Long-lived assets:
Land (including $60,000 increase) ....................................... $200,000
Building (including $30,000 increase) .................................. 450,000
Equipment (including $35,000 decrease) ............................. 505,000
Goodwill ............................................................................... 230,000 1,385,000
Total assets .............................................................................. $1,665,000

Current liabilities ....................................................................... $ 240,000
Common stock ..................................................................... $580,000
Paid-in capital in excess of par ............................................ 450,000
Retained earnings ................................................................ 395,000**
Total stockholders equity ......................................................... 1,425,000
Total liabilities and stockholders equity.................................... $1,665,000
*$50,000 + $70,000 less $25,000 acquisition costs
**$420,000 less $25,000 acquisition costs
PROBLEM 2-2
(1) Investment in Duke Company................................................... 490,000*

Common Stock ($10 par) ..................................................... 140,000
*14,000 shares $35
Acquisition Expense (close to retained earnings) ..................... 25,000
Cash ..................................................................................... 25,000
48
Ch. 2Problems
Problem 2-2, Continued

Implied Price Value
Company fair value ........................................... $612,500 $490,000 $122,500
Goodwill ............................................................ $212,500 $170,000 $ 42,500

Company Parent NCI
Implied Price Value
Fair value of subsidiary .............. $612,500 $490,000 $122,500
Common stock ($10 par) ........ $200,000
Total equity ......................... $340,000 $340,000 $340,000
Book value ................................. $272,000 $ 68,000
value ....................................... $272,500 $218,000 $ 54,500

Worksheet
Adjustment Key
Land ($100,000 fair
$40,000 book value) ............... 60,000 debit D2
Goodwill ..................................... 212,500 debit D5
Total ................................... $272,500
49
Ch. 2Problems
Problem 2-2, Concluded
(3) Rose Company and Subsidiary Duke Company

Consolidated Balance Sheet
July 1, 20X6
Assets
Current assets:
Other assets ......................................................................... $ 95,000*
Inventory (including $5,000 adjustment) .............................. 185,000
$ 280,000
Long-lived assets:
Land (including $60,000 increase) ....................................... $200,000
Building (including $30,000 increase) .................................. 450,000
Equipment (including $35,000 decrease) ............................. 505,000
Goodwill ............................................................................... 212,500 1,367,500
Total assets .............................................................................. $1,647,500

Current liabilities ....................................................................... $ 240,000
Common stock ..................................................................... $540,000
Paid-in capital in excess of par ............................................ 350,000
Retained earnings ................................................................ 395,000**
Noncontrolling interest (from D&D schedule, fair value) ...... 122,500
Total stockholders equity ......................................................... 1,407,500
Total liabilities and stockholders equity.................................... $1,647,500
*$50,000 + $70,000 less $25,000 acquisition costs
**$420,000 less $25,000 acquisition costs
PROBLEM 2-3
(1) Investment in Entro Corporation ............................................... 400,000

Cash ..................................................................................... 400,000

Implied Price Value
Gain on acquisition (retained earnings) ............ $ (20,000) $ (20,000)
50
Ch. 2Problems

Company Parent NCI
Implied Price Value
Common stock ($5 par) .......... $ 50,000
Total equity ......................... $370,000 $370,000
Book value ................................. $370,000
value ....................................... $ 30,000 $ 30,000

Worksheet
Adjustment Key
Land ($40,500 fair $40,000
book value) ............................. 500 debit D2
$180,000 net book value) ....... 22,500 debit D3
($95,000 fair $100,000
Total ....................................... $ 30,000

Common StockEntro ............................................................. 50,000
Paid-In Capital in Excess of ParEntro ................................... 250,000
Retained EarningsEntro ........................................................ 70,000
Investment in Entro Corporation .......................................... 370,000
Inventory ................................................................................... 20,000
Land .......................................................................................... 500
Building ..................................................................................... 22,500
Equipment................................................................................. 2,000
Retained Earnings, Carlson (controlling gain) ...................... 20,000
Investment in Entro Corporation .......................................... 30,000
51
Ch. 2Problems
PROBLEM 2-4
(1) Investment in Express Corporation........................................... 320,000

Cash ..................................................................................... 320,000

Implied Price Value
Company fair value ........................................... $405,400** $320,000 $85,400*
Gain on acquisition (retained earnings) ............ $ (21,600) $ (21,600) $ 0
*NCI minimum allowed is equal to fair value of net assets
**Parents 80% + NCIs minimum

Company Parent NCI
Implied Price Value
Price paid for investment ........... $405,400 $320,000 $ 85,400
Common stock ($10 par) ........ $ 50,000
Total equity ......................... $370,000 $370,000 $370,000
Book value ................................. $296,000 $ 74,000
value ....................................... $ 35,400 $ 24,000 $ 11,400

Worksheet
Adjustment Key
Land ($50,000 fair $40,000
Buildings ($200,000 fair
($95,000 fair $100,000
Total ................................... $ 35,400
52
Ch. 2Problems

Common StockExpress ($50,000 80%) ............................. 40,000
Paid-In Capital in Excess of ParExpress ($250,000 80%) . 200,000
Retained EarningsExpress ($70,000 80%) ........................ 56,000
Investment in Express Corporation ...................................... 296,000
Inventory ................................................................................... 20,000
Land .......................................................................................... 10,000
Buildings ................................................................................... 20,000
Equipment................................................................................. 2,000
Retained EarningsPenson (controlling gain) .................... 21,600
Investment in Express Corporation ...................................... 24,000
Retained EarningsExpress (NCI equity share) ................. 11,400
PROBLEM 2-5
(1) Investment in Robby Corporation ............................................. 480,000

Cash ..................................................................................... 480,000

Implied Price Value
Goodwill ............................................................ $ 63,000 $ 63,000

Company Parent NCI
Implied Price Value
Common stock ($5 par) .......... $ 50,000
Total equity ......................... $370,000 $370,000
Book value ................................. $370,000
value ....................................... $110,000 $110,000
53
Ch. 2Problems

Worksheet
Adjustment Key
Land ($55,000 fair $40,000
$160,000 net book value) ....... (10,000) credit D4
($98,000 fair $100,000
Goodwill ..................................... 63,000 debit D6
Total ................................... $110,000
(3) Retained Earnings .................................................................... 70,000

Inventory ................................................................................... 20,000
Land .......................................................................................... 15,000
Buildings ................................................................................... 20,000
Goodwill .................................................................................... 63,000
Equipment ............................................................................ 10,000
Paid-In Capital in Excess of Par* ......................................... 180,000
*$70,000 retained earnings + $110,000 excess of cost
PROBLEM 2-6

Implied Price Value
Goodwill ............................................................ $140,000 $140,000
54
Ch. 2Problems
Problem 2-6, Continued

Company Parent NCI
Implied Price Value
Common stock ($5 par) .......... $ 50,000
Total equity ......................... $250,000 $250,000
Book value ................................. $250,000
value ....................................... $225,000 $225,000

Worksheet
Adjustment Key
Land ($45,000 fair $35,000
Building and equipment
($225,000 fair 180,000
net book value) ....................... 45,000 debit D3
Copyright ($25,000 fair
($105,000 fair $100,000
Goodwill ($475,000
$335,000) ............................... 140,000 debit D6
Total ................................... $225,000
55
Ch. 2Problems
(2) Adam Company and Subsidiary Sampson Company

Worksheet for Consolidated Balance Sheet
December 31, 20X1
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.
56
Ch. 2Problems
PROBLEM 2-7

Implied Price Value
Goodwill ............................................................ $140,000 $112,000 $28,000

Company Parent NCI
Implied Price Value
Common stock ($5 par) .......... $ 50,000
Total equity ......................... $250,000 $250,000 $250,000
Book value ................................. $200,000 $ 50,000
value ....................................... $225,000 $180,000 $ 45,000

Worksheet
Adjustment Key
Land ($45,000 fair $35,000
Buildings and equipment
($225,000 fair $180,000
net book value) ....................... 45,000 debit D3
Copyrights ($25,000 fair
($105,000 fair $100,000
Goodwill ..................................... 140,000 debit D6
Total ....................................... $225,000
57
Ch. 2Problems
(2) Adam Company and Subsidiary Sampson Company

December 31, 20X1
Adam Sampson Dr. Cr. NCI Sheet
Cash ....................................... 255,000 40,000 ............. ............ ............ 295,000
Accounts Receivable .............. 70,000 30,000 ............. ............ ............ 100,000
Inventory ................................. 130,000 120,000(D1) 20,000 ............ ............
270,000
Investment in Sampson .......... 380,000 ........... ............. (EL) 200,000 ............
............................................
............ ............. (D) 180,000 ........... ............
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) 40,000 ............ (10,000)
............................................
ParSampson .................... ............ (70,000)(EL) 56,000 ............ (14,000)
............................................
Retained EarningsSampson ............ (130,000)(EL) 104,000 (NCI) 45,000
(71,000) ...............................
Common StockAdam .......... (100,000) .......... ............. ............ ............
(100,000)
ParAdam .......................... (250,000) .......... ............. ............ ............
(250,000)
Retained EarningsAdam ..... (633,000) .......... ............. ............
(633,000)
Noncontrolling Interest ........... ............ ............ ............. ............ (95,000)
(95,000)
Totals................................... 0 0 430,000 430,000 0
.......................................... 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:
(D2) Land, $10,000.
(D3) Buildings and equipment, $45,000.
(D4) Copyrights, $15,000.
58
Ch. 2Problems
(D5) Premium on bonds payable, ($5,000).

(D6) Goodwill, $140,000.
59
Ch. 2Problems
PROBLEM 2-8

Implied Price Value
Goodwill ............................................................ $ 45,000 $ 45,000

Company Parent NCI
Implied Price Value
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $160,000 $160,000
Book value ................................. $160,000
value ....................................... $250,000 $250,000

Worksheet
Adjustment Key
Land ($70,000 fair $40,000
$40,000 net book value) ......... 20,000 debit D4
$0 book value) ........................ 50,000 debit D5
Goodwill ..................................... 45,000 debit D6
Total ................................... $250,000
60
Ch. 2Problems
(2) Pantera Company and Subsidiary Sail Company

January 1, 20X1
Pantera Sail Dr. Cr. Sheet
Cash ....................................... 51,000 ........... ............. ............
51,000
Accounts Receivable .............. 65,000 20,000 ............. ............ 85,000
Inventory ................................. 80,000 50,000(D1) 5,000 ............
135,000
Investment in Sail ................... 410,000 ........... ............. (EL) 160,000 .........
............................................
............ ............ ............. (D) 250,000 ............
Land........................................ 100,000 40,000(D2) 30,000 ............

170,000
Buildings ................................. 250,000 200,000(D3) 100,000 ............
550,000
Accumulated Depreciation ..... (80,000) (50,000) ............. ............ (130,000)
Equipment .............................. 90,000 60,000(D4) 20,000 ............
170,000
Copyright ................................ ............ ............ (D5) 50,000 ............
50,000
Goodwill .................................. ............ ............ (D6) 45,000 ............
45,000
Current Liabilities .................... (80,000) (40,000) ............. ............ (120,000)
Bonds Payable ....................... (200,000) (100,000) ............. ............ (300,000)
Common Stock ($1 par)
Sail ...................................... ............ (10,000)(EL) 10,000 ............ ............

ParSail ............................. ............ (90,000)(EL) 90,000 ............ ............
Retained EarningsSail ........ (60,000)(EL) 60,000 ............ ............
Common StockPantera....... (20,000) .......... ............. ............

(20,000)
ParPantera ...................... (180,000) .......... ............. ............
(180,000)
Retained EarningsPantera.. (446,000) .......... ............. ............
(446,000)
Totals................................... 0 0 410,000 410,000 .........
............................................
Noncontrolling Interest ....................................................................................................... ............
Controlling Retained Earnings............................................................................................ ............
Totals............................................................................................................................... 0
(EL) Eliminate the investment in the subsidiary against the subsidiary equity accounts.
(D) Distribute $250,000 excess of cost over book value as follows:
61
Ch. 2Problems

(D2) Land, $30,000.
(D3) Buildings, $100,000.
(D4) Equipment, $20,000.
(D5) Copyright, $50,000.
(D6) Goodwill, $45,000.
62
Ch. 2Problems
PROBLEM 2-9

Implied Price Value
Company fair value ........................................... $ 250,000$ 250,000 N/A
Gain on acquisition ........................................... $(115,000) $(115,000)

Company Parent NCI
Implied Price Value
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $160,000 $160,000
Book value ................................. $160,000
value ....................................... $ 90,000 $ 90,000

Worksheet
Adjustment Key
Land ($70,000 fair
Gain on acquisition
($250,000 $365,000) ........... (115,000) credit D6
Total ................................... $ 90,000
63
Ch. 2Problems

January 1, 20X1
Pantera Sail Dr. Cr. Sheet
Cash ....................................... 211,000 ........... ............. ............
211,000
Accounts Receivable .............. 65,000 20,000 ............. ............ 85,000
Inventory ................................. 80,000 50,000(D1) 5,000 ............
135,000
Investment in Sail ................... 250,000 ........... ............. (EL) 160,000 .........
............................................
............ ............ ............. (D) 90,000 ............
Land........................................ 100,000 40,000(D2) 30,000 ............

170,000
Buildings ................................. 250,000 200,000(D3) 100,000 ............
550,000
Equipment .............................. 90,000 60,000(D4) 20,000 ............
170,000
Copyright ................................ ............ ............ (D5) 50,000 ............
50,000
Goodwill .................................. ............ ............ ............. ............ ............
Current Liabilities .................... (80,000) (40,000) ............. ............ (120,000)
Bonds Payable ....................... (200,000) (100,000) ............. ............ (300,000)
Sail ...................................... ............ (10,000)(EL) 10,000 ............ ............

ParSail ............................. ............ (90,000)(EL) 90,000 ............ ............
Retained EarningsSail ........ ............ (60,000)(EL) 60,000 ............ ............
Common StockPantera....... (20,000) .......... ............. ............

(20,000)
ParPantera ...................... (180,000) .......... ............. ............
(180,000)
Retained EarningsPantera.. (446,000) .......... ............. (D6) 115,000
(561,000)
Totals................................... 0 0 365,000 365,000 .........
............................................
Noncontrolling Interest ....................................................................................................... ............
Controlling Retained Earnings............................................................................................ ............
Totals............................................................................................................................... .......... 0
(D) Distribute $90,000 excess of cost over book value as follows:
64
Ch. 2Problems
(D2) Land, $30,000.

(D6) Gain on acquisition (closed to Panteras retained earnings), $115,000.
65
Ch. 2Problems
PROBLEM 2-10

Implied Price Value
Goodwill ............................................................ $ 85,000 $ 68,000 $17,000

Company Parent NCI
Implied Price Value
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $160,000 $160,000 $160,000
Book value ................................. $128,000 $ 32,000
value ....................................... $290,000 $232,000 $ 58,000

Worksheet
Adjustment Key
Land ($70,000 fair
Goodwill ..................................... 85,000 debit D6
Total ....................................... $290,000
66
Ch. 2Problems

January 1, 20X1
Pantera Sail Dr. Cr. NCI Sheet
Cash ....................................... 101,000 ........... ............. ............ ............
101,000
Inventory ................................. 80,000 50,000(D1) 5,000 ............ ............
135,000
Investment in Sail ................... 360,000 ........... ............. (EL) 128,000 ............
............................................
............ ............ ............. (D) 232,000 ........... ............
Land........................................ 100,000 40,000(D2) 30,000 ............ ............

170,000
Buildings ................................. 250,000 200,000(D3) 100,000 ............ ............
550,000
Equipment .............................. 90,000 60,000(D4) 20,000 ............ ............
170,000
Copyright ................................ ............ ............ (D5) 50,000 ............ ............
50,000
Goodwill .................................. ............ ............ (D6) 85,000 ............ ............
85,000
Bonds Payable ....................... (200,000) (100,000) ............. ............ ............ (300,000)
Sail ...................................... ............ (10,000)(EL) 8,000 ............ (2,000) .

ParSail ............................. ............ (90,000)(EL) 72,000 ............ (18,000)
............................................
Retained EarningsSail ........ ............ (60,000)(EL) 48,000 (NCI) 58,000
(70,000) ...............................
Common StockPantera....... (20,000) .......... ............. ............ ............
(20,000)
ParPantera ...................... (180,000) .......... ............. ............ ............
(180,000)
Retained EarningsPantera.. (446,000) .......... ............. ............ ............
(446,000)
Totals................................... 0 0 418,000 418,000 ............
............................................
Noncontrolling Interest ....................................................................................................... (90,000)
(90,000)
Controlling Retained Earnings............................................................................................................... ............
Totals.................................................................................................................................................. 0
67
Ch. 2Problems
(D)/(NCI) Distribute $232,000 excess and adjust NCI $58,000 (total $290,000 excess) as follows:
(D2) Land, $30,000.
(D6) Goodwill, $85,000.
68
Ch. 2Problems
PROBLEM 2-11

Implied Price Value
Company fair value ........................................... $273,000 $200,000 $73,000*
Gain on acquisition ........................................... $ (92,000) $ (92,000) $ 0
*NCI minimum allowed

Company Parent NCI
Implied Price Value
Price paid for investment ........... $273,000 $200,000 $ 73,000
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $160,000 $160,000 $160,000
Book value ................................. $128,000 $ 32,000
value ....................................... $113,000 $ 72,000 $ 41,000

Worksheet
Adjustment Key
Land ($70,000 fair $40,000
Copyright ($50,000 fair $0
Total ................................... $113,000
69
Ch. 2Problems

January 1, 20X1
Pantera Sail Dr. Cr. NCI Sheet
Cash ....................................... 261,000 ........... ............. ............ ............
261,000
Inventory ................................. 80,000 50,000(D1) 5,000 ............ ............
135,000
Investment in Sail ................... 200,000 ........... ............. (EL) 128,000 ............
............................................
............ ............ ............. (D) 72,000 ........... ............
Land........................................ 100,000 40,000(D2) 30,000 ............ ............

170,000
Buildings ................................. 250,000 200,000(D3) 100,000 ............ ............
550,000
Equipment .............................. 90,000 60,000(D4) 20,000 ............ ............
170,000
Copyright ................................ ............ ............ (D5) 50,000 ............ ............
50,000
Goodwill .................................. ............ ............ ............. ............ ............ ............
Bonds Payable ....................... (200,000) (100,000) ............. ............ ............ (300,000)
Sail ...................................... ............ (10,000)(EL) 8,000 ............ (2,000) .

ParSail ............................. ............ (90,000)(EL) 72,000 ............ (18,000)
............................................
Retained EarningsSail ........ (60,000)(EL) 48,000 (NCI) 41,000
(53,000) ...............................
Common StockPantera....... (20,000) .......... ............. ............ ............
(20,000)
ParPantera ...................... (180,000) .......... ............. ............ ............
(180,000)
Retained EarningsPantera.. (446,000) .......... ............. (D6) 92,000 .
(538,000)
Totals................................... 0 0 333,000 333,000 ............
............................................
Noncontrolling Interest ....................................................................................................... (73,000)
(73,000)
Controlling Retained Earnings............................................................................................................... ............
Totals.................................................................................................................................................. 0
(D)/(NCI) Distribute $72,000 excess and adjust NCI $41,000 (total $113,000 excess) as follows:
70
Ch. 2Problems

(D2) Land, $30,000.
(D6) Gain on acquisition (closed to Panteras retained earnings), $92,000.
71
Ch. 2Problems
PROBLEM 2-12

Implied Price Value
Company fair value ........................................... $1,100,000 $1,100,000 N/A
Goodwill ............................................................ $ 250,000 $ 250,000

Company Parent NCI
Implied Price Value
Fair value of subsidiary .............. $1,100,000 $1,100,000 N/A
Less book value interest acquired:
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $ 340,000 $ 340,000
Book value ................................. 340,000
value ....................................... $ 760,000 $ 760,000

Worksheet
Adjustment Key
$120,000 book value) ............. $(20,000) credit D1
Land ($200,000 fair $100,000
Patent ($150,000 fair
fair $0 book value) ............... 50,000 debit D6
($210,000 fair $200,000
Goodwill ($250,000 fair
Total ....................................... $760,000
72
Ch. 2Problems
(2) Purnell Corporation and Subsidiary Sentinel Corporation

December 31, 20X1
Purnell Sentinel Dr. Cr. Sheet
Cash .................................... 20,000 ........... ............. ............
20,000
Accounts Receivable ........... 300,000 50,000 ............. ............ 350,000
Inventory .............................. 410,000 120,000 ............. (D1) 20,000
510,000
Investment in Sentinel ......... 1,100,000 .... ............. (EL) 340,000 .........
.........................................
............ ............ ............. (D) 760,000 ............
Land..................................... 800,000 100,000(D2) 100,000 ............

1,000,000
Buildings .............................. 2,800,000300,000(D3) 200,000 ............
3,300,000
Accumulated Depreciation .. (500,000) (100,000) ............. ............ (600,000)
Equipment ........................... 600,000 140,000(D4) 110,000 ............
850,000
Patent .................................. ............ 10,000(D5) 140,000 ............
150,000
Computer Software ............. ............ ............ (D6) 50,000 ............
50,000
Goodwill ............................... ............ 60,000(D8) 190,000 ............
250,000
Current Liabilities ................. (150,000) (90,000) ............. ............ (240,000)
Bonds Payable .................... (300,000) (200,000) ............. ............ (500,000)
Premium on Bonds Payable ............ ............ ............. (D7) 10,000
(10,000)
Common StockSentinel ... ............ (10,000)(EL) 10,000 ............ ............

ParSentinel ................... ............ (190,000)(EL) 190,000 ............ ............
Retained EarningsSentinel ............ (140,000)(EL) 140,000 ............ ............
Common StockPurnell ..... (95,000) .......... ............. ............

(95,000)
ParPurnell ..................... (3,655,000) ... ............. ............
(3,655,000)
Retained earningsPurnell (1,100,000) ... ............. ............
(1,100,000)
Totals................................ 0 0 1,130,000 1,130,000 ......
.........................................
NCI ..................................................................................................................................... ............
Totals............................................................................................................................... 0
73
Ch. 2Problems
(EL) Eliminate parent ownership interest.

(D) Distribute excess.
Distribute adjustments:
(D1) Inventory.
(D2) Land.
(D3) Buildings.
(D4) Equipment.
(D5) Patent.
(D6) Computer software.
(D8) Goodwill.
74
Ch. 2Problems
PROBLEM 2-13

Implied Price Value
Gain on acquisition ........................................... $ (50,000) $ (50,000)

Company Parent NCI
Implied Price Value
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $340,000 $340,000
Interest acquired ........................ 100%
Book value ................................. $340,000
value ....................................... $460,000 $460,000

Worksheet
Adjustment Key
$120,000 book value) ............. $ (20,000) credit D1
Land ($200,000 fair
Patent ($150,000 fair $10,000
($210,000 fair $200.000
Total ................................... $460,000
75
Ch. 2Problems

December 31, 20X1
Purnell Sentinel Dr. Cr. Sheet
Cash .................................... 20,000 ........... ............. ............
20,000
Accounts Receivable ........... 300,000 50,000 ............. ............ 350,000
Inventory .............................. 410,000 120,000 ............. (D1) 20,000
510,000
Investment in Sentinel ......... 800,000 .......... ............. (EL) 340,000 .........
.........................................
............ ............ ............. (D) 460,000 ............
Land..................................... 800,000 100,000(D2) 100,000 ............

1,000,000
Buildings .............................. 2,800,000300,000(D3) 200,000 ............
3,300,000
Equipment ........................... 600,000 140,000(D4) 110,000 ............
850,000
Patent .................................. ............ 10,000(D5) 140,000 ............
150,000
Computer Software ............. ............ ............ (D6) 50,000 ............
50,000
Goodwill ............................... ............ 60,000 ............. (D8) 60,000 ............
Current Liabilities ................. (150,000) (90,000) ............. ............ (240,000)

Bonds Payable .................... (300,000) (200,000) ............. ............ (500,000)
Premium on Bonds Payable ............ ............ ............. (D7) 10,000
(10,000)
Common StockSentinel ... ............ (10,000)(EL) 10,000 ............ ............

ParSentinel ................... ............ (190,000)(EL) 190,000 ............ ............
Retained EarningsSentinel ............ (140,000)(EL) 140,000 ............ ............
Common StockPurnell ..... (89,000) .......... ............. ............

(89,000)
ParPurnell ..................... (3,361,000) ... ............. ............
(3,361,000)
Retained EarningsPurnell (1,100,000) ... ............. (D9) 50,000
(1,150,000)
Totals................................ 0 0 940,000 940,000 .........
.........................................
NCI ..................................................................................................................................... ............
Totals............................................................................................................................... 0
76
Ch. 2Problems

(D1) Inventory.
(D2) Land.
(D3) Buildings.
(D4) Equipment.
(D5) Patent.
(D8) Goodwill.
(D9) Acquisition gain closed to parent Retained Earnings.
77
Ch. 2Problems
PROBLEM 2-14

Implied Price Value
Company fair value ........................................... $1,187,500 $950,000 $237,500
Goodwill ............................................................ $ 337,500 $270,000 $ 67,500

Company Parent NCI
Implied Price Value
Fair value of subsidiary .............. $1,187,500 $950,000 $237,500
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $ 340,000 $340,000 $340,000
Book value ................................. $272,000 $ 68,000
value ....................................... $ 847,500 $678,000 $169,500

Worksheet
Adjustment Key
$120,000 book value) ............. $(20,000) credit D1
Land ($200,000 fair
Patent ($150,000 fair
($210,000 fair $200,000
Goodwill ($337,500 fair
Total ................................... $847,500
78
Ch. 2Problems

December 31, 20X1
Purnell Sentinel Dr. Cr. NCI Sheet
Cash .................................... 20,000 ........... ............. ............ ............
20,000
Accounts Receivable ........... 300,000 50,000 ............. ............ ............ 350,000
Inventory .............................. 410,000 120,000 ............. (D1) 20,000 ...........
510,000
Investment in Sentinel ......... 950,000 ........... ............. (EL) 272,000 ............
.........................................
............ ............ ............. (D) 678,000 ........... ............
Land..................................... 800,000 100,000(D2) 100,000 ............ ............

1,000,000
Buildings .............................. 2,800,000300,000(D3) 200,000 ............ ............
3,300,000
Accumulated Depreciation .. (500,000) (100,000) ............. ............ ............ (600,000)
Equipment ........................... 600,000 140,000(D4) 110,000 ............ ............
850,000
Patent .................................. ............ 10,000(D5) 140,000 ............ ............
150,000
Computer Software ............. ............ ............ (D6) 50,000 ............ ............
50,000
Goodwill ............................... ............ 60,000(D8) 277,500 ............ ............
337,500
Current Liabilities ................. (150,000) (90,000) ............. ............ ............ (240,000)
Bonds Payable .................... (300,000) (200,000) ............. ............ ............ (500,000)
Premium on Bonds Payable ............ ............ ............. (D7) 10,000 ...........
(10,000)
Common StockSentinel ... ............ (10,000)(EL) 8,000 ............ (2,000) .

ParSentinel ................... ............ (190,000)(EL) 152,000 ............ (38,000)
.........................................
Retained earningsSentinel ............ (140,000)(EL) 112,000 (NCI) 169,500
(197,500) ..........................
Common StockPurnell ..... (92,000) .......... ............. ............ ............
(92,000)
ParPurnell ..................... (3,508,000) ... ............. ............ ............
(3,508,000)
Retained EarningsPurnell (1,100,000) ... ............. ............ ............
(1,100,000)
Totals................................ 0 0 1,149,500 1,149,500 ............
.........................................
NCI ..................................................................................................................................... (237,500)
(237,500)
Totals.................................................................................................................................................. 0
79
Ch. 2Problems
Eliminations:
(NCI) Adjust NCI to fair value (credit subsidiary retained earnings).
(D1) Inventory.
(D2) Land.
(D3) Buildings.
(D4) Equipment.
(D5) Patent.
(D8) Goodwill.
80
Ch. 2Problems
PROBLEM 2-15

Implied Price Value
Company fair value ........................................... $ 670,000 $ 500,000 $170,000*
Gain on acquisition ........................................... $(180,000) $(180,000) $ 0
*Must at least be equal to fair value of net assets
Company Parent NCI
Implied Price Value
Price paid for investment ........... $670,000 $500,000 $170,000
Common stock ($1 par) .......... $ 10,000
Total equity ......................... $340,000 $340,000 $340,000
Book value ................................. $272,000 $ 68,000
value ....................................... $330,000 $228,000 $102,000
Worksheet
Adjustment Key
$120,000 book value) ............. $ (20,000) credit D1
Land ($200,000 fair
Patent ($150,000 fair $10,000
($210,000 fair $200,000
Total ................................... $ 330,000
81
Ch. 2Problems

December 31, 20X1
Purnell Sentinel Dr. Cr. NCI Sheet
Cash .................................... 20,000 ........... ............. ............ ............
20,000
Accounts Receivable ........... 300,000 50,000 ............. ............ ............ 350,000
Inventory .............................. 410,000 120,000 ............. (D1) 20,000 ...........
510,000
Investment in Sentinel ......... 500,000 ........... ............. (EL) 272,000 ............
.........................................
............ ............ ............. (D) 228,000 ........... ............
Land..................................... 800,000 100,000(D2) 100,000 ............ ............

1,000,000
Buildings .............................. 2,800,000300,000(D3) 200,000 ............ ............
3,300,000
Equipment ........................... 600,000 140,000(D4) 110,000 ............ ............
850,000
Patent .................................. ............ 10,000(D5) 140,000 ............ ............
150,000
Computer Software ............. ............ ............ (D6) 50,000 ............ ............
50,000
Goodwill ............................... ............ 60,000 ............. (D8) 60,000 ........... ............
Current Liabilities ................. (150,000) (90,000) ............. ............ ............ (240,000)

Bonds Payable .................... (300,000) (200,000) ............. ............ ............ (500,000)
Premium on Bonds Payable ............ ............ ............. (D7) 10,000 ...........
(10,000)
Common StockSentinel ... ............ (10,000)(EL) 8,000 ............ (2,000) .

ParSentinel ................... ............ (190,000)(EL) 152,000 ............ (38,000)
.........................................
Retained EarningsSentinel ............ (140,000)(EL) 112,000 (NCI) 102,000
(130,000) ..........................
Common StockPurnell ..... (83,000) .......... ............. ............ ............
(83,000)
ParPurnell ..................... (3,067,000) ... ............. ............ ............
(3,067,000)
Retained EarningsPurnell (1,100,000) ... ............. (D9) 180,000
.......................(1,280,000)
Totals................................ 0 0 872,000 872,000 ............
.........................................
NCI ..................................................................................................................................... (170,000)
(170,000)
Totals.................................................................................................................................................. 0
82
Ch. 2Problems
Eliminations:
(NCI) Adjust NCI to fair value (credit subsidiary retained earnings).
(D1) Inventory.
(D2) Land.
(D3) Buildings.
(D4) Equipment.
(D5) Patent.
(D8) Goodwill.
(D9) Acquisition gain closed to parent Retained Earnings.
83
Ch. 2Problems
APPENDIX PROBLEM
PROBLEM 2A-1
(1) Traded
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (60%)b (40%)c
Company fair value ........................................... $240,000a $144,000 $96,000
Goodwill ............................................................ $ 5,000 $ 3,000 $ 2,000
Gain on acquisition
a
Values are prior to acquisition (4,000 shares $60 market value).
b
Subsequent to acquisition, Untraded Company is the parent with 60% ownership; prior to
acquisition, Untraded Company has 0% ownership of 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.

Traded
Company Parent NCI
Implied Price Value
Common stock ($1 par) .......... $ 4,000
Total equity ......................... $115,000 $115,000 $115,000
Book value ................................. $ 69,000 $ 46,000
value ....................................... $125,000 $ 75,000 $ 50,000

Worksheet
Adjustment Key
$100,000 book value) ............. $100,000 debit D1
Goodwill ..................................... 5,000 debit D3
Total ................................... $125,000
84
Ch. 2Problems
Problem 2A-1 Concluded
Reverse Acquisition
Traded Company and Subsidiary Untraded Company
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 ............ ............ ............
Paid-in excessUntraded...... (115,000) .......... adj115,000 ............ ............ ............

............................................
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)
Paid-in excessTraded ......... ............ (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.
D2 Record goodwill.
adj Assign Untraded Company equity to paid-in capital of Traded Company
85
Ch. 2Problems
CASE
CASE 2-1
(1) Evaluation of priceFair value of Als Hardware:

Cash......................................................................... $ 180,000
Accounts receivable ................................................. 350,000
Inventory .................................................................. 600,000
Land ......................................................................... 100,000
Building .................................................................... 300,000
Equipment ................................................................ 100,000
Current liabilities ...................................................... (425,000)
Mortgage .................................................................. (600,000)
Lawsuit ..................................................................... (300,000)
$ 305,000 60%= $183,000
Value given................................................................... 7,500 $40 = $300,000
This purchase would not be a bargain, because comparing the fair values (including the lawsuit)
to the price would result in goodwill of $117,000 ($300,000 $183,000).
Note: This analysis could also be done for only 60% interest in the form of the D&D schedule with
the same result.
(2) Accounting methods:

(a) GAAP would require that many of the adjustments to recognize fair values must be made
directly on Als books before consolidation:
Adjust accounts receivable to net realizable value.
Decrease inventory to fair value.
Record estimated liability from lawsuit.
(b) There are no major differences between fair and book values of the long-lived assets. Nor-
mally, they would not be adjusted to fair value, but this could be done under quasi-
reorganization or push-down accounting. The recommendation would be that they be ad-
justed to fair value to improve future reporting. Noncontrolling interest would have to agree to
it as well.
(c) Goodwill should be written off because there is no reason to think it exists.
(d) Als Hardware is a likely candidate for quasi-reorganization, because this procedure adjusts
all assets to fair values and decreases Paid-In Capital in Excess of Par to provide the
amount needed to cover the negative balance in Retained Earnings.
Summary: Accounts Receivable, Inventory, Estimated Liability, and Goodwill should be adjusted
on the subsidiarys books. The adjustments of long-lived assets could be done on the subsidiarys
books under push-down accounting. If the long-lived assets are not adjusted on the subsidiary
books, the adjustment relative to the controlling interest would be made in the consolidation
process.
86

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UNDERSTANDING THE ISSUES

3. (a) Company Parent NCI

4. (a) Company Parent NCI

5. (a) Company Parent NCI

(b) Company Parent NCI

6. Company Parent NCI

Company Parent NCI

1. (a) Cash .................................................................................. 20,000*

Exercise 2-2, Concluded

(b) Glass Company

Liabilities and Stockholders Equity

2. (a) Investment in Plastic ............................................. 530,000

Company Parent NCI

(1) Goodwill will be recorded if the price is above $560,000.

(1) Investment in Pail Inc. .............................................................. 950,000

(2) Company Parent NCI

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Exercise 2-4 Concluded

(3) Elimination entries:

(1) Company Parent NCI

Determination and Distribution of Excess Schedule

Exercise 2-5 Concluded

Adjustment of identifiable accounts:

(2) Elimination entries:

(1) Company Parent NCI

Exercise 2-6 Concluded

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

(2) Elimination entries:

(1) Company Parent NCI

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Exercise 2-7 Concluded

(2) Elimination entries:

(1) Company Parent NCI

Determination and Distribution of Excess Schedule

Exercise 2-8 Concluded

Adjustment of identifiable accounts:

(2) Investment in Doyle .................................................................. 315,000

(1) Investment in Craig Company .................................................. 950,000

(2) Company Parent NCI

Determination and Distribution of Excess Schedule

Exercise 2-9 Concluded

Adjustment of identifiable accounts:

(3) Adjustments on Craig books:

(4) Elimination entries:

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

(1) Investment in Duke Company................................................... 630,000*

(2) Company Parent NCI

Determination and Distribution of Excess Schedule

Adjustment of identifiable accounts:

Problem 2-1 Concluded

(3) Rose Company and Subsidiary Duke Company

Liabilities and Stockholders Equity

(1) Investment in Duke Company................................................... 490,000*

Problem 2-2, Continued