Question

Blue Corporation acquired controlling ownership of Skyler Corporation on December 31, 20X3, and a consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:

BLUE CORPORATION AND SKYLER CORPORATION
Balance Sheet Data
December 31, 20X3
Item	Blue Corporation			Skyler Corporation			Consolidated Entity
Assets
Cash	$	63,650		$	35,000		$	98,650
Accounts Receivable		98,000			?			148,000
Inventory		105,000			80,000			195,000
Buildings & Equipment		400,000			340,000			640,000
Less: Accumulated Depreciation		(215,000	)		(140,000	)		(215,000	)
Investment in Skyler Corporation Stock		?
Goodwill								9,000
Total Assets	$	620,000		$	380,000		$	875,650
Liabilities & Equities
Accounts Payable	$	115,000		$	46,000		$	146,000
Wages Payable		?			?			94,000
Notes Payable		200,000			110,000			310,000
Common Stock		120,000			75,000			?
Retained Earnings		115,000			125,000			?
Noncontrolling Interest								90,650
Total Liabilities & Equities	$	?		$	380,000		$	875,650

During 20X3, Blue provided engineering services to Skyler and has not yet been paid for them. There were no other receivables or payables between Blue and Skyler at December 31, 20X3.

Required:

a.	What is the amount of unpaid engineering services at December 31, 20X3, on work done by Blue for Skyler?

     

b.	What balance in accounts receivable did Skyler report at December 31, 20X3?

     

c.	What amounts of wages payable did Blue and Skyler report at December 31, 20X3?

     

d.	What was the fair value of Skyler as a whole at the date of acquisition?

     

e.	What percentage of Skyler’s shares were purchased by Blue?

     

f.	What amounts of capital stock and retained earnings must be reported in the consolidated balance sheet?

    

Answer 1

Answer to part a) Amount of unpaid engineering services at December 31, 20X3, on work done by Blue for Skyler can be calculated by two alternative ways:

1) by calculating differance between consolidated Accounts Payable vis a vis total of individual Acounts Payable as it is mentioned that there is no other receivables or payables between Blue and Skyler at December 31, 20X3.

Calculations: 115,000+46,000-146,000 = 15,000

2) by calculating balancing figure of Assets side of Skyler Corporation Balance Sheet, we will get the Accounts Receivable for Skyler Corporation. Then, by calculating differance between consolidated Accounts Receivable vis a vis total of individual Acounts Receivable, we will get the answer.

Calculations: i) Accounts Receivable of Skyler Corporation: 380,000-(35,000+80,000+340,000-140,000) = 65,000

ii) Amount of unpaid engineering services: 98,000+65,000-148,000 = 15,000

Answer to part b): See calculations in alternative 2 of above answer

Answer to part c): Calculate using balance figure of Liabilities & Equities side of both balance sheets:

1) Wages payable by Blue Corporation: 620,000**-(115,000+200,000+120,000+115,000) = 70,000

**Please note total assets = totals liabilities & equities for Blue corporation. Therefore, total liabilities and equities would be 620,000 as total assets are 620,000

2) Wages payable by Skyler Corporation: 380,000-(46,000+110,000+75,000+125,000) = 24,000

Answer to part d): Fair value at the time of aquisition = Investment made - Goodwill

Investment made can be calculated using balance figure of Assets side of Blue Corporation Balance Sheet:

620,000-(63,650+98,000+105,000+400,000-215,000) = 168,350

Therefore, fair value at the time of aquisition (for shareholding of Blue Corporation) = 168,350 - 9,000 = 159,350

Therefore, fair value at the time of aquisition as a whole = fair value for Blue Corporation Share / % Shareholding

= 159,350/54.675%*** = 291,450 approx.

***see this calculation in part e below.

Answer to part e): Non-controlling interest is given as 90,650 vis a vis 200,000 of net assets of Skyler Corporation. Therefore, non controlling interest in % is 90,650/200,000 = 45.325%.

Therefore, percentage of Skyler's shares purchased by Blue = 100 - 45.325 = 54.675%

Answer to part f): Consolidated balance sheet must report Capital Stock and Retained Earnings of Holding Compnany (i.e. Blue Corporation) only. Therefore Common Stock of 120,000 and Retained Earnings of 115,000 would be reported.