Question

On January 1, 20X1, Maroon Company paid $710,000 to acquire all of Gold Company's common stock. The $166,000 excess paid above Gold's book value was attributed to a building with a 20-year life whose book value was $103,000 below its market value and to unrecorded in process R & D whose market value was $63,000 with a 6-year life. As of December 31, 20X3, Gold reported its year-end values as follows: Revenues $200,000 Expenses $160,000 Dividends declared $ 10,000 Part 1 For the year ended 20X3: A. Determine the year-end value of Maroon's Equity Income account. B. Determine the year-end consolidated value of in process R&D. C. Determine the 20x3 consolidation adjustment (entry A) for the building. Part 2 In preparation for the consolidated financial statements, prepare worksheet entries: D A E. I F. E G.P

Answer 1

Solution

Maroon Company acquire all stock of Good Company at the consideration of $ 7,10,000/-

Detail of Maroon Company  paid consideration are as follows:

Book Value of Good Company Stock - $ 5,44,000/-

Excess Value paid above Stock Book Value - $ 1,66,000/-

As per above detail the Stock book Value amount is add in 'Maroon Company' Assets but

excess consideration of Rs. 1,66,000/- required to be expense off in appropriate manner.

In question it is given that the excess consideration is attribute by Rs. 1,03,000/-to

Building with 20 year of life and Rs. 63,000/- to R & D with 6 year of life.

Henceforth detail of excess consideration amount written off each year are as follows:

Building - Amount required to written Off - 1,03,000 /-

Building Life - 20 years

:- Amount w/off each year - 5,150/-

R & D - Amount required to written off - 63000/-

R & D Life - 6 years

:- Amount w/off each year - 10,500/-

As per above calculation Total amount of Excess consideration required to written off each year

are as follows:

For first Six years - 15,650/- (i.e. Building-5,150 & R & D-10,500 )

From 7th to 20th year - 5,150/- (i.e. R & D expenses required to written off for only

first six years )

Solution of Part 1 (A)
Year End Value of Maroon equity statement -
Revenue		$2,00,000
Less:
Expenses	($1,60,000)
Expenses (Excess consideration written Off)	($15,650)	($1,75,650)
Less : Dividend Declared	($10,000)	($10,000)
Net Income		$14,350
Net revenue earned By maroon Company for the year ended December 31, 20X3 is $14,350

Solution of Part 1 (B)
Year End consolidated Value of in process R & D   -
Market Value of in process R & D as on 01st Jan-20X1		$63,000
Less:
Written Off Value for the period from 01st Jan-20X1 TO 31ST Jan -20X1	($10,500)
Written Off Value for the period from 01st Jan-20X2 TO 31ST Jan -20X2	($10,500)
Written Off Value for the period from 01st Jan-20X3 TO 31ST Jan -20X3	($10,500)	($31,500)
Resultant Year End 20X3 consolidated value		$31,500
Resultant consolidated value of in process R & D for the year ended December 31, 20X3 is $31,500

Solution of Part 1 (C)
Consolidation adjustment entry for Building for the year ended 31-12-20X3
Entry -1
Particulars	Amount (Dr)	Amount (Cr)
Written Off Expenses A/c Dr.	$5,150
To Building A/c		$5,150
(Being Value written off from Building a/c for the year ended 31-12-20X3)
Entry-2
Profit & Loss A/c Dr.	$5,150
Written Off Expenses A/c		$5,150
(Being Building Value written off for the year ended 31-12-20X3 have been apportioned in Profit & Loss a/c)

Solution of Part 2 (D)
Consolidation FINANCIAL statement entry for the year ended 31-12-20X3
Entry -1
Particulars	Amount (Dr)	Amount (Cr)
Revenue A/c Dr	$2,00,000
To Profit & Loss A/c		$2,00,000
(Being Revenue for the year ended 31-12-20X3 apprortioned in Profit & Loss A/c)
Entry -2
Particulars	Amount (Dr)	Amount (Cr)
Profit & Loss A/c Dr.	$1,60,000
To Expense A/c		$1,60,000
(Being Expenses for the year ended 31-12-20X3 apprortioned in Profit & Loss A/c)
Entry -3
Particulars	Amount (Dr)	Amount (Cr)
Profit & Loss A/c Dr.	$10,000
To Dividend Paid A/c		$10,000
(Being Dividend declared & paid for the year ended 31-12-20X3 are recored in Profit & Loss A/c)
Entry -4
Particulars	Amount (Dr)	Amount (Cr)
Profit & Loss A/c Dr.	$5,150
To Written Off Expenses A/c		$5,150
(Being Building Value written off for the year ended 31-12-20X3 have been apportioned in Profit & Loss a/c)
Entry -5
Particulars	Amount (Dr)	Amount (Cr)
Profit & Loss A/c Dr.	$10,500
To Written Off Expenses A/c		$10,500
(Being R & D in process Value written off for the year ended 31-12-20X3 have been apportioned in Profit & Loss a/c)
Entry -6
Particulars	Amount (Dr)	Amount (Cr)
Net Profit A/c Dr.	$14,350
To Profit & Loss A/c		$14,350
(Being Profit earned   for the year ended 31-12-20X3 have been recognised)