The condensed financial statements for OIL Inc. and ERS Company for the year ended December 31, Year 5, follow:
OIL | ERS | ||||
Revenues | $ | 945,000 | $ | 330,000 | |
Expenses | 675,000 | 215,000 | |||
Net income | $ | 270,000 | $ | 115,000 | |
Retained earnings, 1/1/Year 5 | $ | 815,000 | $ | 215,000 | |
Net income | 270,000 | 115,000 | |||
Dividends paid | 105,000 | 0 | |||
Retained earnings, 12/31/Year 5 | $ | 980,000 | $ | 330,000 | |
Cash | $ | 95,000 | $ | 125,000 | |
Receivables and inventory | 415,000 | 185,000 | |||
Patented technology (net) | 915,000 | 322,500 | |||
Equipment (net) | 715,000 | 615,000 | |||
Total assets | $ | 2,140,000 | $ | 1,247,500 | |
Liabilities | $ | 615,000 | $ | 432,500 | |
Common shares | 545,000 | 485,000 | |||
Retained earnings | 980,000 | 330,000 | |||
Total liabilities and equities | $ | 2,140,000 | $ | 1,247,500 | |
On December 31, Year 5, after the above figures were prepared, OIL issued $255,000 in debt and 15,000 new shares to the owners of ERS for 80% of the outstanding shares of that company. OIL shares had a fair value of $35 per share.
OIL also paid $45,000 to a broker for arranging the transaction. In addition, OIL paid $47,000 in stock issuance costs. ERS’s equipment was actually worth $720,000, but its patented technology was appraised at only $295,000.
Required:
What are the consolidated balances for the year ended/at December 31, Year 5, for the following accounts?
(a) Net income
OIL's net income considered in the Consolidated Financial Statement $
(b) Retained earnings, 1/1/Year 5
OIL's retained earnings in the Financial statement for Consolidation $
(c) Equipment
Value of equipment after acquisition $
(d) Patented technology
Value of patent after acquisition $
(e) Goodwill
Goodwill $
(f) Liabilities
Total liabilities after acquisition $
(g) Common shares
Total value of common shares after acquisition $
(h) Non-controlling interests
Total value of non-controlling interest after acquisition $
Part A
OIL's net income considered in the Consolidated Financial Statement = Parent's income prior to the date of acquisition- paid to broker = 270000-45000 = $225000
Part B
OIL's retained earnings in the Financial statement for Consolidation = Parent's retained earnings prior to the date of acquisition, at 1/1/Year 5 = $815000
Part C
Value of equipment after acquisition = 715000+615000+105000 = $1435000
Part D
Value of patent after acquisition = 915000+322500-27500 = $1210000
Part E
Goodwill = $82500
Part F
Total liabilities after acquisition = 615000+432500+255000 = 1302500
Part G
Total value of common shares after acquisition = 545000+(15000*35)-47000= $1023000
Part H
Total value of non-controlling interest after acquisition = 20%*975000 = $195000
Cost of 80% of ERS ($255,000 + 15,000 shares x $35) |
780000 |
|
Implied value of 100% of ERS |
975000 |
|
Carrying amount of ERS’s net assets |
||
Assets |
1247500 |
|
Liabilities |
432500 |
815000 |
160000 |
||
Acquisition differential |
||
Allocated: |
||
Equipment (720000-615000) |
105000 |
|
Patent technology (295000-322500) |
-27500 |
77500 |
Goodwill |
$82500 |
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