Question

1. On January 1, 2017, Parent Co., acquired 100 percent of the common stock of Sub Co for $1,000,000 in cash. At that time, the building which had a remaining life of 20 years and was undervalued by 200,000 and they had a patent not recorded on their books of 100,000 with a remaining life of 10 years. Below is the relevant information for Parent Co. and Sub Co.

	Parent Co 12/31/18	Sub Co 12/31/16	Sub Co 13/31/17	Sub Co 13/31/18
Revenues	-1,000,000	-400,000	-450,000	-500,000
Cost of goods sold	400,000	120,000	135,000	150,000
Depreciation expense	100,000	80,000	80,000	80,000
Amortization expense	100,000	-	-	-
Investment income from Sub Co	-250,000	-	-	-
Net income	-650,000	-200,000	-235,000	-270,000
Retained earnings Begin	-1,000,000	-250,000	-400,000	-400,000
Net income	-650,000	-200,000	-235,000	-270,000
Dividends paid	200,000	50,000	235,000	270,000
Retained earnings Ending	-1,450,000	-400,000	-400,000	-400,000
Current assets	240,000	100,000	130,000	160,000
Investment in Sub Co	960,000	0	0	0
Building (net)	3,000,000	450,000	420,000	390,000
Trademark	400,000	100,000	100,000	100,000
Patent	100,000	0	0	0
Goodwill	0	0	0	0
Total assets	4,700,000	650,000	650,000	650,000
Liabilities	-300,000	-50,000	-50,000	-50,000
Common stock	-100,000	-100,000	-100,000	-100,000
Additional paid-in capital	-2,850,000	-100,000	-100,000	-100,000
Retained earnings 12/31/13	-1,450,000	-400,000	-400,000	-400,000
Total liabilities and equity	-4,700,000	-650,000	-650,000	-650,000

a.Calculate the Book value

b. Calculate the amount of goodwill and excess consideration over fair value allocation on the acquisition date if any.

c. Prepare a consolidation worksheet for this business combination using the provided worksheet for the year ended 12/31/2018.

Answer 1

Net Assets	Book Value	Adjustments	Fair Value
Current assets	1,00,000		100000
Building (net)	4,50,000	+200000	650000
Trademark	1,00,000		100000
Patent	0	+100000	100000
Total assets	6,50,000		950000
Liabilities	-50,000		-50,000
Net Assets	6,00,000		9,00,000
Purchase Price			1000000
Goodwill		=Purchase price-Net Assets of Sub CO
		=1000000-900000
		100000

Consolidated
	Parent co	Sub CO
	31-12-2018	31-12-2018	Adjustments
Revenues	-10,00,000	-5,00,000		-15,00,000
Cost of goods sold	4,00,000	1,50,000		5,50,000
Depreciation expense	1,00,000	80,000		1,80,000
Amortization expense	1,00,000	0		1,00,000
Investment income from Sub Co	-2,50,000	0		-2,50,000
Net income	-6,50,000	-2,70,000		-9,20,000
Retained earnings Begin	-10,00,000	-4,00,000		-1000000
Net income	-6,50,000	-2,70,000		-920000
Dividends paid	2,00,000	2,70,000		470000
Retained earnings Ending	-14,50,000	-4,00,000		-1450000
	Parent Co	Sub CO	Adjustments
Current assets	2,40,000	1,60,000		4,00,000
Investment in Sub Co	9,60,000	0
Building (net)	30,00,000	3,90,000	2,00,000	35,90,000
Trademark	4,00,000	1,00,000		5,00,000
Patent	1,00,000	0	100000	2,00,000
Goodwill	0	0	100000	1,00,000
Total assets	47,00,000	6,50,000	4,00,000	47,90,000
Liabilities	-3,00,000	-50,000		-3,50,000
Common stock	-1,00,000	-1,00,000		-1,00,000
Additional paid-in capital	-28,50,000	-1,00,000		-28,50,000
Retained earnings 12/31/13	-14,50,000	-4,00,000		-1490000	Being decrease in amount of investment in Sub co adjusted to investment revenue
Total liabilities and equity	-47,00,000	-6,50,000		-47,90,000	0