Week #3 Solutions

Exercise 3-3
Part A Investment in Sun Company
Cash
Part B

192,000
192,000

PRUNCE COMPANY AND SUBSIDIARY

Consolidated Balance Sheet
January 2, 2011
Assets
Cash ($260,000 + $64,000 $192,000)
Accounts Receivable
Inventory
Plant and Equipment (net)
Land ($63,000 + $32,000 + $28,333*)
Total Assets

$132,000
165,000
171,000
484,000
123,333
$1,075,333

Liabilities and Stockholders Equity

Accounts Payable
Mortgage Payable
Total Liabilities

$151,000
111,000
262,000

Noncontrolling Interest ($192,000/0.9 0.1)

Common Stock
Other Contributed Capital
Retained Earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

$21,333
400,000
208,000
184,000
813,333
$1,075,333

* [$192,000/0.9 ($70,000 + $20,000 + $95,000)] = $28,333

Exercise 3-4
Part A Investment in Swartz Company ($60 1,500)
Common Stock ($20 1,500)
Other Contributed Capital ($40 1,500)

90,000
30,000
60,000

Other Contributed Capital

Cash
Part B Computation and Allocation of Difference

1,700
1,700
Parent
Share

Purchase price and implied value

Less: Book value of equity acquired
Difference between implied and book value
Goodwill

NonControlling
Share
$90,000
0
83,000*
0
7,000
0
(7,000)
(0)

Entire
Value
90,000
83,000
7,000
(7,000)

Balance

-0-

-0-

-0-

* $40,000 + $24,000 + $19,000 = $83,000

Part C

Peach Company and Subsidiary

Consolidated Balance Sheet
January 1, 2010
Assets
Cash ($73,000 + $13,000 - $1,700)
Accounts Receivable
Inventory
Plant and Equipment
Land
Goodwill*
Total Assets

$ 84,300
114,000
83,000
138,000
48,000
7,000
$ 474,300

Liabilities and Stockholders Equity

Accounts Payable
Notes Payable
Total Liabilities
Common Stock ($100,000 + $30,000)
Other Contributed Capital ($60,000 + $60,000 - $1,700)
Retained Earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

$84,000
103,000
$187,000
$130,000
118,300
39,000
287,300
$ 474,300

* Cost of investment less fair value acquired equals goodwill or ($90,000 $83,000 = $7,000).
Recall that the book value of net assets equals the fair value of net assets in this problem.
Exercise 3-6
Part A

$37,41
2
$249,4
12

Noncontrolling Interest

= 15% Noncontrolling Interest

Implied Value*

* Implied Value = Parents value $212,000 + NCI $37,412 = $249,412

Common Stock-Shipley
Other Contributed Capital-Shipley
Retained Earnings-Shipley
Land $249,412 - $236,000
Investment in Shipley Company
Noncontrolling Interest

90,000
90,000
56,000
13,412
212,000
37,412

Part B

SHIPLEY COMPANY
Balance Sheet
December 31, 2010
Cash
Accounts Receivable
Inventory
Plant and Equipment
Land ($220,412 - $13,412 - $120,000)
Total Assets

$ 15,900
22,000
34,600
147,000
87,000
$ 306,500

Accounts Payable
Common Stock
Other Contributed Capital
Retained Earnings
Total Equities

$ 70,500
90,000
90,000
56,000
$ 306,500

Problem 3-1
P COMPANY AND SUBSIDIARY
Consolidated Balance Sheet Workpaper
November 30, 2011
P
Company

S
Company

880,000
190,000

260,000

Eliminations
Dr.
Cr.

Noncontrolling Consolidated
Interest
Balance

Part I
Current Assets
Investment in S Company
Difference between Implied and Book
Value
Long-term Assets
Other Assets
Total Assets
Current Liabilities
Long-term Liabilities
Common Stock:
P Company
S Company
Retained Earnings
P Company
S Company
Noncontrolling Interest
Total Liabilities and Equity

1,140,000
(1)

1,400,000
90,000
2,560,000
640,000
850,000

400,000 (2)
40,000
700,000

(1) 190,000
71,111 (2) 71,111
71,111

1,871,111
130,000
3,141,111

270,000
290,000

910,000
1,140,000

600,000

600,000
180,000 (1) 180,000

470,000

470,000
(40,000)

2,560,000

700,000

780,000

280,000

(1) 40,000
(2) 21,111
322,222
322,222

21,111

21,111
3,141,111

Part II
Current Assets

1,060,000

Investment in S Company
Difference between Implied & Book
Value
Long-term Assets
Other Assets
Total Assets

190,000
(2)
1,200,000
70,000
2,240,000

(1) 190,000
8,889 (1)
8,889

400,000
70,000
750,000

(2)

8,889

1,591,111
140,000
2,791,111

Current Liabilities
700,000
260,000
Long-term Liabilities
920,000
270,000
Common Stock:
P Company
600,000
S Company
180,000 (1) 180,000
Retained Earnings
P Company
20,000
S Company
40,000 (1) 40,000
Noncontrolling Interest
(1) 21,111
Total Liabilities and Equity
2,240,000
750,000
228,889
228,889
(1) To eliminate investment account and create noncontrolling interest account
(2) To allocate the difference between implied value and book value to long-term assets.

960,000
1,190,000
600,000
20,000
21,111

21,111
2,791,111

Computation and Allocation of Difference (Case 2)

Parent
Share
Purchase price and implied value
Less: Book value of equity acquired
Difference between implied and book value
Decrease long-term assets to fair value
Balance

190,000
198,000
(8,000)
8,000
-0-

NonControlling
Share
21,111
22,000
(889)
889
-0-

Entire
Value
211,111*
220,000
(8,889)
8,889
-0

* $190,000/.90
Problem 3-3

P COMPANY AND SUBSIDIARY

Consolidated Balance Sheet Workpaper
August 1, 2011

P
S
Eliminations
Noncontrolling Consolidated
Company Company
Interest
Balance
Dr.
Cr.
Cash
165,500 106,000 (b) 35,000
306,500
Receivables
366,000 126,000 (a)
800 (3)
800
457,000
(4) 35,000
Inventory
261,000 108,000
369,000
Investment in Bonds
306,000
(2) 40,000
266,000
Investment in S Company Stock 586,500
(1) 586,500
Difference between Implied and
Book Value
(5) 24,333 (1) 24,333
Plant and Equipment (net)
573,000 320,000
(5) 24,333
868,667
Land
200,000 300,000
500,000
Total Assets
2,458,000 960,000
2,767,167

Accounts Payable
Accrued Expenses
Bonds Payable, 8%
Common Stock:
P Company
S Company
Other Contributed Capital:
P Company
S Company
Retained Earnings
P Company
S Company
Noncontrolling Interest
Total
Advances from P Company
Total Liabilities and Equity

174,000
32,400

58,000
26,000 (3)
800
200,000 (2) 40,000

232,000
57,600
160,000

1,500,000

1,500,000
460,000 (1) 460,000

260,000

260,000
60,000 (1) 60,000

491,600

(a)

800

492,400

156,000 (1) 156,000

(1) 65,167
2,458,000

65,167

65,167

960,000
(4) 35,000 (b) 35,000
811,933
811,933

2,767,167

(a) To establish reciprocity for interest receivable and payable and to recognize interest earned
(b) To establish reciprocity for intercompany advances
(1) To eliminate Investment in S Company and create noncontrolling interest account
(2) To eliminate intercompany bondholdings
(3) To eliminate intercompany interest receivable and payable
(4) To eliminate intercompany advances
(5) To allocate the difference between implied value and book value to plant and equipment
Computation and Allocation of Difference
Parent
Share
Purchase price and implied value
586,500
Less: Book value of equity acquired ($676,000 x .9) 608,400

NonEntire
Controlling
Value
Share
65,167
651,667*
67,600
676,000

Difference between implied and book value

Decrease PPE to fair value
Balance

(2,433)
2,433
-0-

* $586,500/.90

(21,900)
21,900
-0-

(24,333)
24,333
-0-

Problem 3-7

B)
Cash ($700,000 $594,000 + $ 111,000)
Accounts Receivable (net)
Inventory
Property and Equipment (net)
Land
Total Assets

PREGO COMPANY AND SUBSIDIARY

Consolidated Balance Sheet
January 1, 2011
(Part A)

Accounts Payable
Notes Payable
Long-term Debt
Noncontrolling Interest ($500,000 + $80,000 + $80,000) 0.10)
Common Stock
Other Contributed Capital (part B, $543,000 + [($50 $20) 11,880]
Retained Earnings
Total Equities

(Part

$ 217,000
1,122,000
604,000
2,395,000
214,000
$4,552,000

$ 811,000
1,122,000
604,000
2,395,000
214,000
$5,146,000

$ 454,000
649,000
440,000
66,000
1,800,000
543,000
600,000
$4,552,000

$ 454,000
649,000
440,000
66,000
2,037,600
899,400
600,000
$5,146,000