Question

Proprio Company acquires 100% of Ception Company for $600,000 on January 1, 2016. Ception reported common stock of $300,000, no additional paid-in capital, and retained earnings of $210,000 on that date. Equipment was undervalued by $33,000 and it had a 2-year remaining life, while its only building was undervalued by $44,000 and it had a 8-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on annual reviews, goodwill has not been impaired. Ception earns income and pays dividends as follows:

2016 2017 2018 Net income $100,000 $140,000 $120,000 Dividends 60,000 80,000 70,000

Proprio is using equity method for its investment in Ception. Prepare consolidation journal entries for the following dates:

1. 12.31.2016 [5 points]

2. 12.31.2017 [8 points]

3. 12.31.2018 [7 points]

Answer 1

Date	Journal Accounts (Year 2016)	Debit	Credit
31st Dec'16	Common Stock A/c    Dr	300,000
	Retained Earning 01/01/16	210,000
	To Investment in Ceptions		510,000
	(elimination entry of equity investment)
31st Dec'16	Equipment A/c   Dr	33,000
	Building A/c        Dr	44,000
	Goodwill A/c      Dr	13,000
	To Investment in Ceptions		90,000
	(to record excess value of assets acquired)
31st Dec'16	Equity Income in Ception	78,000
	To Investment in Ceptions		78,000
	(elimination of equity income from equity investment)
31st Dec'16	Investment in Ceptions	60,000
	To Dividend paid		60,000
31st Dec'16	Depreciation Expense a/c   Dr	22,000
	To equipment		16,500
	To Building		5,500
	(Depreciation Entry recorded)
Date	Journal Accounts (Year 2017)	Debit	Credit
31st Dec'17	Common Stock A/c    Dr	300,000
	Retained Earning 01/01/17	250,000
	To Investment in Ceptions		550,000
	(elimination entry of equity investment)
31st Dec'17	Equipment A/c   Dr	16,500
	Building A/c        Dr	38,500
	Goodwill A/c      Dr	13,000
	To Investment in Ceptions		68,000
	(to record excess value of assets acquired)
31st Dec'17	Equity Income in Ception	118,000
	To Investment in Ceptions		118,000
	(elimination of equity income from equity investment)
31st Dec'17	Investment in Ceptions	80,000
	To Dividend paid		80,000
31st Dec'17	Depreciation Expense a/c   Dr	22,000
	To equipment		17,500
	To Building		5,500
	(Depreciation Entry recorded)
Date	Journal Accounts (Year 2018)	Debit	Credit
31st Dec'18	Common Stock A/c    Dr	300,000
	Retained Earning 01/01/18	310,000
	To Investment in Ceptions		610,000
	(elimination entry of equity investment)
31st Dec'18	Equipment A/c   Dr	-
	Building A/c        Dr	33,000
	Goodwill A/c      Dr	13,000
	To Investment in Ceptions		46,000
	(to record excess value of assets acquired)
31st Dec'18	Equity Income in Ception	114,500
	To Investment in Ceptions		114,500
	(elimination of equity income from equity investment)
31st Dec'18	Investment in Ceptions	70,000
	To Dividend paid		70,000
31st Dec'18	Depreciation Expense a/c   Dr	5,500
	To equipment		-
	To Building		5,500
	(Depreciation Entry recorded)

Calculation of Goodwill if any in acquisition
Particular		Amount(in $)
Purchase Price		600,000
Less: Book value
Common Stock	300,000
Reatined Earning 1st Jan'16	210,000
Total Book Value		510,000
Excess of Fair value over book value		90,000
Allocation of excess Fair value over book value
Equipment	33,000
Building	44,000
Goodwill (90000-33000-44000)	13,000

Calculation of Depreciaiton Expenseson Excess Value Allocated to Specified Assets
Assets	Value As on 01/01/17(a)	Life(b)	Depreciation (a/b)
Equipment	33,000	2	16,500
Building	44,000	8	5,500
Goodwill	13,000	0	-
	90,000		22,000

Calculation of Amortised value of Excess Valueof Assets acquired in acquistion
Assets	Value As on 01/01/16(a)	Depreciation per year (b)	Value As on 01/01/17 ©= (a)-(b)	Value As on 01/01/18 (c)-(b)
Equipment	33,000	16,500	16,500	-
Building	44,000	5,500	38,500	33,000
Goodwill	13,000		13,000	13,000
Total	90,000	22,000	68,000	46,000