Question

EXCEL CASE 2

On January 1, 2017, Hi-Speed.com acquired 100 percent of the common stock of Wi-Free Co. for cash of $730,000. The consideration transferred was allocated among Wi-Free’s net assets as follows:

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Wi-Free fair value (cash paid by Hi-Speed)		$730,000
Book value of Wi-Free:
Common stock and additional paid-in capital (APIC)	$130,000
Retained earnings	370,000	500,000
Excess fair value over book value to		230,000
In-process R&D	$ 75,000
Computer software (overvalued)	(30,000)
Internet domain name	120,000	165,000
Goodwill		$ 65,000

At the acquisition date, the computer software had a 4-year remaining life, and the Internet domain name was estimated to have a 10-year remaining life. By the end of 2017, it became clear that the acquired in-process research and development would yield no economic benefits and Hi-Speed.com recognized an impairment loss. At December 31, 2018, Wi-Free’s accounts payable included a $30,000 amount owed to Hi-Speed.

The December 31, 2018, trial balances for the parent and subsidiary follow:

	Hi-Speed.com	Wi-Free Co.
Revenues	$ (1,100,000)	$ (325,000)
Cost of goods sold	625,000	122,000
Depreciation expense	140,000	12,000
Amortization expense	50,000	11,000
Equity in subsidiary earnings	(175,500)	–0–
Net income	$ (460,500)	$ (180,000)
Retained earnings 1/1/18	$ (1,552,500)	$ (450,000)
Net income	(460,500)	(180,000)
Dividends declared	250,000	50,000
Retained earnings 12/31/18	$ (1,763,000)	$ (580,000)
Current assets	$ 1,034,000	$ 345,000
Investment in Wi-Free	856,000	–0–
Equipment (net)	713,000	305,000
Computer software	650,000	130,000
Internet domain name	–0–	100,000
Goodwill	–0–	–0–
Total assets	$ 3,253,000	$ 880,000
Liabilities	$ (870,000)	$ (170,000)
Common stock	(500,000)	(110,000)
Additional paid-in capital	(120,000)	(20,000)
Retained earnings 12/31/18	(1,763,000)	(580,000)
Total liabilities and equity	$ (3,253,000)	$ (880,000)

Required

1. Using Excel, prepare calculations showing how Hi-Speed derived the $856,000 amount for its investment in Wi-Free.

2. Using Excel, compute consolidated balances for Hi-Speed and Wi-Free. Use Worksheet Method

Answer 1

Calculation of Investment value of Hispeed as on 31.12.2018
Wi-Free Co	Amount($)
		Formula
Investment as on 01.01.2017	665000	730000-65000
Add: Profits of subsidiary for 2017	80000	450000-370000
Add: Profits of subsidiary for 2018	111000	180000-50000+12000+11000-42000
Inestment value	856000	0
Consolidated Balance sheet
Revenues	1425000
Cost of goods sold	747000
Depreciation expense	152000
Amortisation expense	61000
Equity in subsidiary earnings	175500
	640500
Current assets	1349000
Equipment	1018000
Software	780000
Domain	100000
	3247000
Liabilities	1010000
Retained earnings	1763000
Capital reserve	474000
	3247000