Question

Paxton Company purchased 90% of the outstanding shares of slinton Company's common stock on December 31, 2017 for $144,000 in cash. Paxton paid the prevaling market price per share (no control premium) Several of Slinton's accounts had fair market values that differed from book values at the date of a cquisition Land Building (10 year life) Equipment (6 year life) Book Value $24,000 $40,000 $24,000 Fair Market Value $16,000 $58,000 $18,000 The 2017 and 2018 year-end trial balances for each company are available in an attached worksheet. er information Paxton has stipulated that Slinton will continue to exist as a separate legal e Paxton uses the equity method in accounting for Slinton's operations. Paxton uses straight-line depreciation for all of its assets. REQUIRED: Prepare consolidation worksheets for Paxton and Slinton on a) December 31, 2017 b) December 31, 2018 Elimination templates are provided in the attached worksheets)

Answer 1

(Overstated) / Understated Assets Book Value Fair Value [B-A] Land Buildin Equipment 24,000 40,000 24,000 16,000 58,000 18,000 8,000 18,000 6,000 Calculation of Goodwill at Acquistion Acquisition Cost Total Fair Value of slinton (144,000 / 90% Less: Book value of Slinton Cash Receivables Invento Land Buildings (net Equipment (net Liabilities Goodwill (Balance) 144,000 160,000 28,000 30,000 38,000 16,000 58,000 18,000 (56,000) 132,000 28,000

Paxton Company and Subsidiary Slinton Consolidated Worksheet At December 31, 2017 Adjustment Entries Paxton Slinton Debit Consolidated Totals 94,000 88,400 92,000 Credit Cash Receivables Invento Investment in S Land Buildings (net Equipment (net Goodwill Total Assets 66,000 58,400 54,000 144,000 140,000 144,000 82,000 28,000 30,000 38,000 144,000 8,000 24,000 40,000 24,000 156,000 202,000 100,000 28,000 760,400 18,000 6,000 28,000 688,400 184,000 Liabilities Common stock Retained Earnings NCI otal Liabilities and Equity (248,400) (160,000) (280,000) 56,000 40,000 88,000 304,400 (160,000) 280,000 (16,000) (760,400) 40,000 88,000 16,000 (688,400) (184,000) 174,000 174,000

Working Notes Calculation of Investment in S and NCI Investment in S NCI Total 90% 36,000 79,200 10% 4,000 8,800 100% 40,000 88,000 Common stock of Slinton Retained earnings of Slinton Excess fair value of Assets Land Buildin Equipment Goodwill Total 7,200) 16,200 5,400) 25,200 144,000 800 1,800 600 2,800 16,000 8,000 18,000 6,000 28,000 160,000

Paxton Company and Subsidiary Slinton Consolidated Worksheet At December 31, 2018 Adiustment Entries Paxton Slinton Debit Credit Consolidated Totals (360,000) 164,000 68,800 Revenues Cost of goods sold Operating Expenses Equity Earnings NCI in Income Net Income 240,000 120,000 40,000 42,480 120,000 44,000 28,000 800 42,480 4,720 4,720 (122,480) (48,000) (122,480) R/E, Beg Balance Net Income Dividends paid R/E, End Balance 280,000 122,480 56,800 (345,680) 88,000 48,000 32,000 (104,000) (280,000) (122,480) 56,800 (345,680) 88,000 32,000

Cash Receivables Invento Investment in S Land Buildings (net Equipment (net Goodwill Total Assets Liabilities NCI Common stock Retained Earnings Total Liabilities and Equity 83,200 84,000 76,000 157,680 140,000 137,200 76,000 32,000 36,000 52,000 115,200 120,000 128,000 28,800 24,000 36,000 20,000 186,480 8,000 1,800 6,000 156,000 189,400 91,000 28,000 827,600 304,400 17,520 160,000 (345,680) (827,600) 18,000 1,000 28,000 754,080 200,000 (248,400) (56,000) 17,520 (160,000) (345,680 (754,080) 40,000) 104,000) (200,000)251 40,000 251,800

Working Notes: Calculation of Depreciation on Excess Fair value over Book value Assets Life Depreciation [A/B] Amount Land Buildin Equipment Goodwill Total (8,000) 18,000 6,000) 28,000 32,000 10 1,800 1,000 800 Calculation of Investment in Slinton Balance Equity Earnings Land [-8,000 x 9096] Building [18,000 x 90%) Equipment [-6,000 x 90%) Goodwill [28,000 x 90%) Common Stock (40,000 x 90%) 42,480 7,200 16,200 5,400 25,200 36,000 79,200 28,800 E, beg, Balance (88,000 Total Credit Adiustment Debit Adiustment Dividends (32,000 x 90%) Investment in Slinton 90%) 115,200 186,480 (28,800) 157,680

Calculation of Net Income attributable to Controlling Interest and Non-controlling Interest Net Income of Slinton Less: excess amortization Adjusted net income Equity Inc of slinton (47,200 x 90% NCI in income (47,200 x 10% 48,000 (800) 47,200 42,480 4,720 Calculation of Noncontrolling Interest Land [-8,000 x 10%) Building [18,000 x 10%) Equipment [-6,000 x 10%) Goodwill [28,000 x 10%) Common Stock (40,000 x 10%) R/E, beg, Balance (88,000 x 10%) NCI of income Dividends (32,000 x 10%) NCI 800) 1,800 (600) 2,800 4,000 8,800 3,200 12,800 4,720 (3,200) 17,520