Question

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The Investor acquired 75% of Investee on January 1, 2020 for $105,000. At acquisition the fair value of the noncontrolling interest was $35,000. Trial Balances for the two entities at December 21, 2020 are:

Required The book value of the investee's assets are equal to the fair value except for Building & Equipment which are worth $25,000 more. Building and Equipment have 10 years of remaining life at time of acquisition

1. Allocation of Acquisition Value
2. Equity entries for 2020.
3. Worksheet entries for the 2019 year end consolidation

INVESTOR Credit INVESTEE Debit Credit 32,000 14,000 24,000 25,000 150,000 Cash Accounts Receivables Inventory Land Buildings & Equipments Investment in Subsidary Cost of Good Sold Wage Expense Depreciation Expense Interest Expenses Other Expense Dividends Declared Accumulated Depreciation Account Payable Wages Payable Notes Payable Common Stock Retain Earnings Sales Income from subsidary Total Debit 68,500 85,000 97,000 42,875 350,000 118,875 145,000 35,000 25,000 12,000 23,000 30,000 114,000 20,000 10,000 4,000 11,000 20,000 170,000 51,000 14,000 150,000 200,000 126,875 290,000 25,500 1,027,375 50,000 15,000 6,000 50,000 55,000 48,000 200,000 $ 1,032,250 $ $ 424,000 $ 424,000

Answer 1

Balance Sheet
	Investor	Investee	Consolidated
Common Stock	$        200,000	$          55,000	$        200,000
Retained Earnings	$        122,250	$          39,000	$        111,125
Non Controlling Interest	$                   -	$                   -	$          49,625
Dividend Declared	$          30,000	$          20,000	$          35,000
Account Payable	$          51,000	$          15,000	$          66,000
Wages Payable	$          14,000	$            6,000	$          20,000
Notes Payable	$        150,000	$          50,000	$        200,000
Total	$        567,250	$        185,000	$        681,750
Land	$          42,875	$          25,000	$          67,875
Buildings & Equipments	$        155,000	$          90,000	$        267,500
Goodwill	$                   -	$                   -	$          25,875
Investment in subsidiary	$        118,875	$                   -	$                   -
Inventory	$          97,000	$          24,000	$        121,000
Account Receivable	$          85,000	$          14,000	$          99,000
Cash & Cash equivalent	$          68,500	$          32,000	$        100,500
Total	$        567,250	$        185,000	$        681,750

Income Statement
A. Income	Investor	Investee
Sales	$          290,000	$          200,000
B. Expenses
Cost of goods sold	$       (145,000)	$       (114,000)
Wages Expenses	$          (35,000)	$          (20,000)
Depreciation Expenses	$          (25,000)	$          (10,000)
Interest Expenses	$          (12,000)	$            (4,000)
Other Expenses	$          (23,000)	$          (11,000)
Profit	$            50,000	$            41,000

Calculation of Net assets of subsidiary company
	On Acquisition Date	Changes	On the date of consolidation
Common Stock	$            55,000	$                     -	$                55,000
Retained Earnings	$            48,000	$            41,000	$                89,000
	$          103,000	$            41,000	$             144,000
Add: Dividend declared		$            20,000
Profit on revaluation of Buildings & Equipments	$            25,000
Less: Undercharged Depreciation		$            (2,500)
	$          128,000	$            58,500
Share of investor @75%		$            43,875
Share of investee @25%		$            14,625

Calculation of Non-controlling Interest
Fair Value at acquisition date	$            35,000
Post Acquisition Profit	$            14,625
Total	$            49,625

Calculation of Goodwill
Fair value of Investment at the date of acquisition	$          118,875
Add: Fair Value at acquisition date	$            35,000
Less: Fair value of Net assets on the date of acquisition	$       (128,000)
Goodwill	$            25,875