Question

Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining 30 percent of Sawyer's outstanding shares continue to trade at a collective value of $174,000. On the acquisition date, Sawyer has the following accounts: Current assets Land Buildings Liabilities Book Value $ 210,000 170,000 300,000 (280,000) Fair Value $ 210,000 180,000 330,000 (280,000) The buildings have a 10-year remaining life. In addition, Sawyer holds a patent worth $140,000 that has a five-year remaining life but is not recorded on its financial records. At the end of the year, the two companies report the following balances: Revenues Expenses Parker $ (900,000) 600,000 Sawyer $ (600,000) 400,000 a. Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year? b. Assume that the acquisition took place on April 1. Sawyer's revenues and expenses occurred uniformly throughout the year. What amounts would appear in a consolidated income statement for this year? a. January 1 b. April 1 Combined revenues Combined expenses Consolidated net income Net income attributable to noncontrolling interest Net income attributable to Parker, Inc.

Answer 1

Above calculation purely based of Holding , Subsidiary relationship with consolidation + Goodwill amount derive . Good will amount will derive on the basis of Excess of Fair value Vs Book Value and allocate the same among asset ( difference between Fair vs Book Value)

Acquisition date - )1st jan and further date - 01st April- W need to derived Income Statement under two date ,

as on 01st jan - No change in Proportionate Number - line by Line consolidation ,

as on 01st April - We need to derived income statement after derive proportionate revenue /expenses till 31st March ( 3 Months amount need to factored) .

please see below complete workings in this matter :

Adjustment of Purchase value Vs Fair Value		Amnt($)
Parker Acquire 70% share In Sawyer		4,20,000
Non Controlling Interest - 30%		1,74,000		Book Value- Subsidiary	Amnt($)	Amnt($)	Change in Value
Total Investment made by parker		5,94,000	( Fair Value)		Book Value	Fair   Value	($)
Book Value of Asset at the time of Acquition		4,00,000		Current Assets	2,10,000	2,10,000	-
Fair Value excess of Book Value		1,94,000		Land	1,70,000	1,80,000	10,000
				Building	3,00,000	3,30,000	30,000
				Total Asset	6,80,000	7,20,000	40,000
				Liabilities	2,80,000	2,80,000	-
				Net Book Vaue	4,00,000	4,40,000	40,000

Goodwill determination on the basis of		Amnt($)	Life of the asset	Depreciation($)
Fair value excess of Book Value		1,94,000
Land ( Differential Value)		10,000
Building ( Differential Value)		30,000	10	3,000
Patent ( as per Question)		1,40,000	5	28,000
Goodwill		14,000		31,000

Income Statement( Acquisition date -01st Jan)		Parker ( $)	Sawyer($)	Consolidated($)	Adjustment ($)	Consolidated- after Adj($)
Revenue		9,00,000	6,00,000	15,00,000		15,00,000
Expenses		6,00,000	4,00,000	10,00,000		10,31,000
Depreciation					31,000
Net Margin			2,00,000			4,69,000
Allocation between Non Controlling Interest						50,700
( Sawyer Net Margin = Revenue - Expenses )-Depreciaton *30%
( Revenue - $ 600000 Expenses -$400000 Margin -$200000- Depreciation -$ 31000)*30%
Parent ( Parker share)						4,18,300

Income Statement( acquisition date 1 April)		Parker ( $)	Sawyer($)	3 Month factor (Jan- March)	Sawyer($)-Adjusted Part	Consolidated($)	Adjustment ($)	Consolidated- after Adj($)
Revenue		9,00,000	6,00,000	1,50,000	4,50,000	13,50,000		13,50,000
Expenses		6,00,000	4,00,000	1,00,000	3,00,000	9,00,000		9,23,250
Depreciation					-	31,000	23,250
Net Margin					1,50,000			4,26,750
( Sawyer Net Margin = Revenue - Expenses )-Depreciaton *30%								38,025
(150000-23250)*30%
Adjusted depreciation
31000-31000*3/12)
Parent ( Parker share)								3,88,725