Question

1. 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 31, 2020 are: Investor Investee Debit Credit Debit Credit Cash 68,500 32,000 Accounts Receivable 85,000 14,000 Inventory 97,000 24,000 Land 42,875 25,000 Buildings & Equipment 350,000 150,000 Investment in Subsidary 118,875 Cost of Goods Sold 145,000 114,000 Wage Expense 35,000 20,000 Depreciation Expense 25,000 10,000 Interest Expense 12,000 4,000 Other Expense 23,000 11,000 Dividends Declared 30,000 20,000 Accumulated Depreciation 170,000 50,000 Accounts Payable 51,000 15,000 Wages Payable 14,000 6,000 Notes Payable 150,000 50,000 Common Stock 200,000 55,000 Retained Earnings 126,875 48,000 Sales 290,000 200,000 Income from Subsidary 25,500 Total 1,032,250 1,027,375 424,000 424,000 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. Required: 1. Allocation of Acquisition Value 2. Equity entries for 2020. 3. Worksheet entries for the 2019 year end consolidation.

Answer 1

1) Acquisition analysis Fair value of consideration Add: Fair value of non-controlling interest (NCI) 1,05,000 35,000 Less: Net assets of subsidiary (Balancing figure) Acquisition differential 1,40,000 1,15,000 25,000 Allocation of the acquisition differential Total acquisition differential Less: Undervaluation of building and equipment Total 25,000 -25,000 2) 1,05,000 Equity entries for 2020 Investment in subsidiary Cash (Recording of investment in Sub Inc.) 1,05,000 28,875 Investment in subsidiary [75%*(200,000-114,000-20,000-10,000-4,000-11,000-2,500*)] Income from subsidiary (Recording share of parent company's share in subsidiary company's reported net income) 28,875 15,000 15,000 Cash ($20,000*75%) Investment in subsidiary (Recording share of parent company's share in dividends paid by subsidiary company) CS Scanned with CamScanner

Annual amortisation of excess fair value over book value Building & Equipment (25,000/10) Total annual amortisations 2,500 2,500 3) Consolidation entries for 2019 year end consolidation Common stock Retained earnings Income from Sub Inc. Non-controlling interest in net income of Sub Inc. Dividends declared Investment in Sub Inc. Non-controlling interest in net assets of Sub Inc. 55,000 48,000 28,875 9,625 20,000 1,18,875 2,625 2,500 Depreciation expense (25,000/10) Income from Sub Inc. (2,500*75%) Non-controlling interest in net income of Sub Inc. (2,500*25%) (Amortization of excess acquisition price) 1,875 625 2,500 250 Building Accumulated depreciation Investment in Sub Inc. Non-controlling interest in net assets of Sub Inc. 1,688 562 CS Scanned with CamScanner