Question

Majority-Owned Subsidiary Acquired et Higher than Book Value LO 5-2 E5-6 Professor Corporation acquired 70 percent of Scholar Corporation's common stock on December 31, 20x4, for $102,200. The fair value of the noncontrolling interest at that date was determined to be $43,800. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition Professor Scholar Item Corporation Corporation S s0,300 Cash $ 21,000 Accounts Receivable 90,000 44,000 Inventory 130,000 75,000 Land 60,000 30,000 Buildings & Equipment 410,000 250,000 Less: Accumulated Depreciation (150,000) (80,000) Investment in Scholar Corporation 102,200 Total Assets $692,500 $340,000 $ 35,000 Accounts Payable $152,500 Mortgage Payable 250,000 180,000 Common Stock 80,000 40,000 Retained Earnings 210,000 85,000 Total Liabilities & Stockholders' Equity $692,500 $340,000 At the date of the business combination, the book values of Scholar's assets and liabilities approximated fair value except Page 216 for inventory, which had a fair value of $81,000, and buildings and equipment, which had a fair value of $185,000. At December 31, 20x4, Professor reported accounts payable of $12,500 to Scholar, which reported an equal amount in its accounts receivable. Required a Give the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. b. Prepare a consolidated balance sheet worksheet c. Prepare a consolidated balance sheet in good form.

Answer 1

1	Date of control/acquisition		31-12-20*4
2	% of control		70%
3	Analysis of profit
	Particulars		Pre
a	Retained Earnig		85,000
b	Adjustments:
i	increase in fair market value of inventory	6,000
	(81000 fair value-75000 book value)
ii	increase in valution of buildings & equipments	15,000	21,000
	(185000 fair value-170000(250000-80000)after considering depreciation
	Net total		1,06,000
	Share of Zenith Corporation	70%	74,200
	Minority interest	30%	31,800
4	Cost of Control
	Particulars		$
a	Cost of investment		1,02,200
b	Share in net assets of Down Corporation
	70% in common stock(40000*70%)	28,000
	Share in pre profits	74,200	1,02,200
c	Goodwill		-
5	Minority interest
a	Share in common stock(40000*30%)		12,000
b	Share in pre profits		31,800
	Total		43,800
Ans:Part-a	Consolidation entries in the consolidated balance sheet of Zenith Corporation as on 31 December 20*4
	Cash A/c	Dr.	21,000
	Accounts receivables A/c	Dr.	44,000
	Inventory A/c	Dr.	81,000
	Land A/c	Dr.	30,000
	Building & equipment A/c	Dr.	1,85,000
	To Accounts payable A/c			35,000
	To Mortgage payable A/c			1,80,000
	To Investment in Down Corporation Stock A/c			1,02,200
	To Minority Interest A/c			43,800
	(Being consolidated entry passed)
			3,61,000	3,61,000
Ans:Part-b	Preparation of consolidated work sheet
	in this, we need to calculate the amount of line of items to prepare consolidated balance sheet
	Items	Zenith Corp	Down Corp	Elimination	Total
	Cash	50,300	21,000	-	71,300
	Accounts receivables	90,000	44,000	12,500	1,21,500
	Inventory	1,30,000	81,000	-	2,11,000
	Land	60,000	30,000	-	90,000
	Building & equipment	2,60,000	1,85,000	-	4,45,000
	Accounts payable	1,52,500	35,000	12,500	1,75,000
	Mortgage payable	2,50,000	1,80,000	-	4,30,000
	Common Stock	80,000	-	-	80,000
	Retained earning	2,10,000	-	-	2,10,000
	Minority share	43,800	-	-	43,800
Ans:Part-c	Preparation of Consolidated Balance Sheet of Zenith Corporation as on 31 December 20*4
	Consolidated Balance Sheet of Zenith Corporation as on 31 December 20*4
	Particulars	Amount ($)
	Cash	71,300
	Accounts receivables	1,21,500
	Inventory	2,11,000
	Land	90,000
	Building & equipment	4,45,000
	Total Assets	9,38,800
	Accounts payable	1,75,000
	Mortgage payable	4,30,000
	Common Stock	80,000
	Retained earning	2,10,000
	Minority share	43,800
	Total Liabilities	9,38,800