Question

PROBLEM 3-1 Consolidated Workpaper: Two Cases LO 8 LO9 The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2019, just after the parent had purchased 90% of the subsidiary's stock: Case 1 Case II P Company S Company P Company s Company Current assets $ 880,000 $260,000 $ 780,000 $280,000 Investment in Company 190.000 190,000 Long-term assets 1,400,000 400,000 1,200,000 400,000 Other assets 99.000 49.000 20.000 70.000 Total $2.560,000 $700,000 $2,240,000 $750,000 Current liabilities $ 640,000 $270,000 $700,000 $260,000 Long-term liabilities 850,000 290.000 920,000 270,000 Common stock 600,000 180,000 600,000 180,000 Retained earnings 470.000 (40.000) 20.000 40.000 Total $2.560,000 $700,000 $2,240,000 $750,000 Required: A. Prepare a November 30, 2019, consolidated balance sheet workpaper for each of the foregoing cases. In Case I, any difference between book value of equity and the value implied by the purchase price relates to subsidiary long-term assets. In Case II, assume that any excess of book value over the value implied by purchase price is due to overvalued long-term assets. B. Assume that Company S's balance sheet is the same as the balance sheet used in Case I (from part A). Suppose that there were 50,000 shares of Company common stock outstanding and that company Pacquired 90% of the shares for $4.50 a share. Shortly after acquisition, the noncontrolling shares were selling for $4.25 a share. Prepare a computation and allocation of difference schedule considering this information.

Answer 1

Solution-

P COMPANY AND SUBSIDIARY

Non containing consolidated cr Balance 1,140,000 Current Assets Investment ins Company . (1190000 (171111 P COMPANY AND SUBSIDINRY Consolidated Balance sheet P S Elimination company company D. Interest 880000 260000 19 0000 (2) 71,111 Difference between implied I Book value long term Assets 1400,000 400.000 2)11,111 other Assets 9owo 40000 Total Assets 3141111 2560 DOD 700.000 Current Labilities 64000D 270000 long term Liabilities 850000 290000 Common Stock :- 600000 180000 (1) 18 0000 1,871,111 130000 3.141,111 9 1 000 140000 6000vo P company s company Retained fårning : P company s company Hon controlling Inleves 470000 470000 (40000) (UL DOOD 2.)21,111 *322222 322,222 21,111 21,111 Total Liability & Fquftig 2560.000 700000 314) TT

Book Vale Long term pwede (2) 6889 1591.111 130000 D Company AND Subsidiary Consolidalu Balance shell work paper D S Elimination Non-controlling consolidated company company Dri Balance 780000 280000 10 60,000 Current Assets (0190000 Investment in scompany 190000 Diference beturin Sorgliere (2) 8899 (2) 8899 1200.000 UODOUD On Asalta 10000 70000 Total Asut 2 200 CUD 150000 2.797111 960000 current liabilities 7000UD 260000 11 90 DOU Long teulu Liabilities 920 000 270007 Commen stack 600 od P company 600OUD . 180000 (1.180000 Relained Extning p comply s campany 4000D (V 40000 Non contadling Interest (21,111 21,111 21,111 Total liabilities & Equity 2240010 750000 228889 228889 2 ODOU 47000 2,791,111

calculations

Share Entis Value 211,111 22 000 computation & Allocation of difference ( Case 2) Parent share Non controlling Purchase Price & 19.000 21,111 Implied value 6) Book Value of 198 000 220000 (8000) (889) (8,889) Decrease long term 8000 889 8,889 Assets to fail' value Balance Equity acquired Differenie Bctiveen Implied & Buok Value o * $ 190000 0.90
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