Question

Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2016. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams’s acquisition. On December 31, 2016, Barstow had the following account balances:

	Book Value				Fair Value
Current assets	$	160,000			$	160,000
Land		120,000				150,000
Buildings (10-year remaining life)		220,000				200,000
Equipment (5-year remaining life)		160,000				200,000
Patents (10-year remaining life)		0				50,000
Notes payable (due in 5 years)		(200,000	)			(180,000	)
Common stock		(180,000	)
Retained earnings, 12/31/16		(280,000	)

December 31, 2018, adjusted trial balances for the two companies follow:

		Adams Corporation				Barstow, Inc.
Debits
Current assets		$	610,000			$	250,000
Land			380,000				150,000
Buildings			490,000				250,000
Equipment			873,000				150,000
Investment in Barstow, Inc.			702,000				0
Cost of goods sold			480,000				90,000
Depreciation expense			100,000				55,000
Interest expense			40,000				15,000
Dividends declared			110,000				70,000
Total debits		$	3,785,000			$	1,030,000
Credits
Notes payable		$	860,000			$	230,000
Common stock			510,000				180,000
Retained earnings, 1/1/18			1,367,000				340,000
Revenues			940,000				280,000
Investment income			108,000				0
Total credits		$	3,785,000			$	1,030,000

At year-end, there were no intra-entity receivables or payables.

a. Prepare schedules for acquisition-date fair-value allocations and amortizations for Adams’s investment in Barstow.

b. Determine Adams’s method of accounting for its investment in Barstow.

c.&d. Prepare a consolidation worksheet for Adams Corporation and Barstow, Inc., as of December 31, 2018.

Answer 1

ANSWER

a)

Preparing Schedules for Acquisition Date Fair Value Allocations and Amortizations for Adam's Investment in Barstow:

Consideration transferred by Adams	$603,000
Noncontrolling interest fair value	$67,000
Acquisition-date total fair value	$670,000
Book value of Barstow	($460,000)
Excess fair value over book value	$210,000

		Remaining Life	Annual Excess Amortization
Land	$30,000	-	-
Buildings	($20,000)	10 Years	($2,000)
Equipment	$40,000	5 Years	$8,000
Patents	$50,000	10 Years	$5,000
Notes payable	$20,000	5 Years	$4,000
Goodwill	$120,000
Total			$15,000

b)

Determining the Adam's Method of Accounting for its Investment in Barstow:

Noncontrolling Interest in Barstow's Income:

Barstow reported income	$120,000
Excess amortization expenses 2018	($!5,000)
Adjusted income of Barstow	$105,000
Noncontrolling interest ownership	10%
Noncontrolling interest in Barstow's income	$10,500

c&d)

Preparing a Consolidated Worksheet for Adams Corporation and Barstow Inc., as of December 31, 2018:

ADAMS CORPORATION AND BARSTOW, INC Consolidation Worksheet - Acquisition Method Year Ended December 31, 2018
			Adjusting and Elimination Entries
	Adams Corp	Barstow Inc	Debit	Credit	NCI	Consolidated Totals
Revenues	(940,000)	(280,000)				(1,220,000)
Cost of Goods Sold	480,000	90,000				570,000
Depreciation expense	100,000	55,000	(E) 6,000			161,000
Amortization expense			(E) 5,000			5,000
Interest expense	40,000	15,000	(E) 4,000			59,000
Investment income	(108,000)		(I) 108,000			0
Separate company net income	(428,000)	(120,000)
Consolidated net income						(425,000)
Income to noncontrolling interest					(10,500)	10,500
Income to controlling interest						(414,500)
Retained earnings 1/1	(1,367,000)	(340,000)	(C) 13,500			(1,353,500)
			(S) 340,000
Net income	(428,000)	(120,000)				(414,500)
Dividends paid	110,000	70,000		(D) 63,000	7,000	110,000
Retained earnings 12/31	(1,685,000)	(390,000)				(1,658,000)
Current Assets	610,000	250,000				860,000
Investment in Barstow	702,000		(D) 63,000	(C) 13,500		0
				(S) 468,000
				(A) 175,500
				(I) 108,000
Land	380,000	150,000	(A) 30,000			560,000
Buildings	490,000	250,000	(E) 2,000	(A) 18,000		724,000
Equipment	873,000	150,000	(A) 32,000	(E) 8,000		1,047,000
Patents			(A) 45,000	(E) 5,000		40,000
Goodwill			(A) 90,000			90,000
Total Assets	$3,055,000	800,000				3,321,000
Notes Payable	(860,000)	(230,000)	(A) 16,000	(E) 4,000		(1,078,000)
Common Stock	(510,000)	(108,000)	(S) 108,000			(510,000)
Retained Earnings, 12/31	(1,685,000)	(390,000)				(1,658,000)
				(S) 52,000
Noncontrolling interest				(A) 19,500	(71,500)
Total liabilities and Stockholder's equity	(3,055,000)	(800,000)	75,000	75,000		(3,321,000)