House Corporation has been operating profitably since its creation in 1959. At the beginning of 2011, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule:
Consideration transferred for 70 percent interest in Wilson |
| $ 707,000
|
Fair value of the 30% noncontrolling interest |
| 303,000 |
Wilson business fair value |
| $1,010,000
|
Wilson book value |
| 790,000 |
Excess fair value over book value |
| $ 220,000
|
Assignments to adjust Wilson’s assets to fair value: |
|
|
To buildings|(20-year life) | $ 60,000 |
|
To equipment (4-year life) | (20,000) |
|
To franchises (10-year life) | 40,000 | 80,000 |
To goodwill (indefinite life) |
| $ 140,000 |
House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House’s purchases during 2011 and 2012 and related ending inventory balances follow:
Year | Intra-Entity Purchases | Remaining Intra-Entity Inventory—End of Year (at transfer price) |
2011 | $120,000 | $40,000 |
2012 | 150,000 | 60,000 |
On January 1, 2013, House and Wilson acted together as co-acquirers of 80 percent of Cuddy Company’s outstanding common stock. The total price of these shares was $240,000, indicating neither goodwill nor other specific fair-value allocations. Each company put up one-half of the consideration transferred. During 2013, House acquired additional inventory from Wilson at a price of $200,000. Of this merchandise, 45 percent is still held at year-end.
Using the three companies’ following financial records for 2013, prepare a consolidation worksheet. The partial equity method based on operating income has been applied to each investment.
| House Corporation | Wilson Company | Cuddy Company |
Sales and other revenues | $ (900,000) | $ (700,000) | $(300,000) |
Cost of goods sold | 551,000 | 300,000 | 140,000 |
Operating expenses | 219,000 | 270,000 | 90,000 |
Income of Wilson Company | (91,000) | -0- | -0- |
Income of Cuddy Company | (28,000) | (28,000) | -0- |
Net income | $ (249,000) | $ (158,000) | $ (70,000) |
Retained earnings, 1/1/13 | $ (820,000) | $ (590,000) | $(150,000) |
Net income (above) | (249,000) | (158,000) | (70,000) |
Dividends paid | 100,000 | 96,000 | 50,000 |
Retained earnings, 12/31/13 | $ (969,000) | $ (652,000) | $(170,000) |
Cash and receivables | $ 220,000 | $ 334,000 | $ 67,000 |
Inventory | 390,200 | 320,000 | 103,000 |
Investment in Wilson Company | 807,800 | -0- | -0- |
Investment in Cuddy Company | 128,000 | 128,000 | -0- |
Buildings | 385,000 | 320,000 | 144,000 |
Equipment | 310,000 | 130,000 | 88,000 |
Land | 180,000 | 300,000 | 16,000 |
Total assets | $ 2,421,000 | $ 1,532,000 | $ 418,000 |
Liabilities | $ (632,000) | $ (570,000) | $ (98,000) |
Common stock | (820,000) | (310,000) | (150,000) |
Retained earnings, 12/31/13 | (969,000) | (652,000) | (170,000) |
Total liabilities and equities | $(2,421,000) | $(1,532,000) | $(418,000) |
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