Professional Documents
Culture Documents
d
The major motivation for off-balance-sheet financing is to avoid the impact on leverage.
2.
b
The fair values of the entitys assets and liabilities are included with those of the U.S.
company on the consolidated balance sheet. The fair value of the net assets is owned by
outside parties, and is labeled noncontrolling interest.
3.
d
Cash
Flow
$156,000
46,800
31,200
Total
4.
5.
Present
Value
$150,000
45,000
30,000
Prob
0.65
0.20
0.15
Expected
PV
$ 97,500
9,000
4,500
$111,000
Investment
$111,000
111,000
111,000
Residual
Returns
$39,000
(66,000)
(81,000)
Expected
Gains
$25,350
_____
$25,350
Expected
Losses
$(13,200)
(12,150)
$ 25,350
50,000
200
10,600
39,600
a
Elimination (E) is:
Capital stock
Retained earnings
Accumulated OCI
Treasury stock
Investment in SX
5,000
8,000
1,000
9,600
2,400
7.
c
Elimination (R) is:
Current assets
Identifiable intangible assets (1)
Long-term debt
Goodwill (2)
PP&E
Current liabilities
Investment in SX
(1)
(2)
8.
2,200
15,000
400
34,400
4,000
400
47,600
d
See elimination R above.
9.
10.
c
IFRS requires consolidation of a less-than-majority-owned equity investment if the
investor controls the investee. If PX owns 40% of SCs stock, and the other 60% is
spread among small investors, it is likely that PX controls SC. Alternative d is not correct
because PX does not have a majority vote and cannot make decisions unilaterally; other
investors owning 45% of the stock (= 85% shares voted - 40% shares voted by PX)
participate in the decision making process and influence decisions.
EXERCISES
E3.1
E3.2
$ 20,000
(72,000)
(52,000)
$
(100)
(10,000)
(170,000)
50,000
(10,000)
140,100
$ 88,100
Note that even though Petrel pays less than book value for Samsons stock, Petrel still
pays more than the fair value of Samsons identifiable net assets, and therefore goodwill
is recognized.
b.
(E)
Common stock
1,000
Additional paid-in capital
80,000
AOCI
500
Retained earnings
5,500
Treasury stock
4,000
Investment in Samson
72,000
To eliminate Samsons stockholders equity accounts and the book value portion of
the investment account.
(R)
Trademarks
50,000
Goodwill
88,100
Investment in Samson
52,000
Accounts receivable
100
Inventories
10,000
Land, buildings and equipment, net
170,000
Noncurrent liabilities
10,000
To revalue Samsons assets and liabilities to fair value and eliminate the difference
between book value and fair value of Samsons net assets from the investment
account.
Note that because the acquisition cost is less than book value, eliminating entry (R)
requires a debit to the investment account to eliminate it.
E3.3
$ 8
(20)
(12)
$ (2)
(25)
17
10
$ (2)
The fair value of Skeltons identifiable net assets is $10 (= $3 + $20 + $17 $30).
Phelps paid only $8, and records a gain of $2 on acquisition
Investment in Skelton
Cash
Gain on acquisition
To record the bargain gain investment on Phelps books.
Cambridge Business Publishers, 2016
3-4
10
8
2
b. (E)
Capital stock
25
Retained earnings
5
Investment in Skelton
20
To eliminate Skeltons stockholders equity accounts and the book value portion of
the investment account.
(R)
Identifiable intangibles
17
Investment in Skelton
10
Current assets
2
Noncurrent assets
25
To revalue Skeltons assets and liabilities to fair value and eliminate the difference
between book value and fair value of Samsons net assets from the investment
account.
E3.4
E3.5
10,000,000
300,000
250,000
9,750,000
300,000
b. (E)
Capital stock
200,000
Retained earnings
1,800,000
Investment in Stengl
2,000,000
To eliminate Stengls equity and the book value portion of the investment account.
(R)
Long-term debt
25,000
Identifiable intangible assets
500,000
Goodwill
8,275,000
Plant assets, net
600,000
Inventories
200,000
Investment in Stengl
8,000,000
To revalue Stengls identifiable net assets to fair value, recognize goodwill, and
eliminate the remainder of the investment account.
Note: Acquisition costs are expensed separately on Pinnacles books and do not
affect consolidation eliminating entries.
E3.6
2,980
40
2,790
230
(R)
Inventories
100
Land
100
Other plant assets, net
250
Long-term debt
30
Investment in Sherman
480
To revalue Shermans identifiable net assets to fair value and eliminate the remainder
of the investment account.
Note: Acquisition costs and the gain on acquisition are recorded separately as
expenses and gains, respectively, on Publix books, and do not affect consolidation
eliminating entries.
E3.7
E3.8
$88,000,000
48,000,000
40,000,000
2,000,000
$42,000,000
2,650
8
413
250
1,995
b.
Consolidation Working Paper (in millions)
Accounts Taken
From Books
Current assets
Plant and equipment, net
Investment in Spark
Phoenix
Dr(Cr)
$
587
3,500
2,650
Spark
Dr(Cr)
$ 200
700
--
--(500)
(2,000)
(550)
(2,595)
(1,092)
$
0
--(150)
(300)
(100)
(50)
(300)
$ 0
Eliminations
Dr
(R)
200
(R) 300
(R) 1,710
(E) 100
(E)
50
(E) 300
$ 2,660
Consolidated
Cr
Balances Dr(Cr)
10 (R)
$
777
4,400
450 (E)
-2,200 (R)
300
1,710
(650)
(2,300)
(550)
(2,595)
_______
(1,092)
$ 2,660
$
0
$2,650
(450)
$2,200
$ (10)
200
300
(490)
$1,710
E3.9
40
40
b.
Consolidation Working Paper (in millions)
Cash
Other current assets
Property and equipment, net
Investment in Sylvan
Goodwill
Liabilities
Common stock
Additional paid-in capital
Retained earnings
Total
Accounts Taken
From Books
Princecraf
t
Sylvan
Dr(Cr)
Dr(Cr)
$ 20
$
2
20
8
70
15
40
--(30)
(15)
(45)
(60)
$
0
-(8)
(5)
(10)
(2)
$
0
Eliminations
Dr
(R) 23
(E) 5
(E) 10
(E) 2
$
40
Consolidated
Balances Dr(Cr)
$ 22
28
85
17 (E)
-23 (R)
23
(38)
(15)
(45)
____
(60)
$ 40
$ 0
Cr
Note for eliminating entry (R): Because there are no revaluations of Sylvans
identifiable assets and liabilities, the excess of acquisition cost over the book value of
the acquired company is attributed entirely to goodwill. Goodwill = acquisition cost
of $40 minus book value of $17 = $23. Eliminating entry (R) eliminates the
remainder of the investment account and recognizes the acquired goodwill.
c.
Princecraft Company and Subsidiary
Consolidated Balance Sheet
Date of Acquisition
Assets
Liabilities
Cash
$ 22
Total liabilities
Other current assets
28
Property and equipment, net
85
Stockholders equity
Goodwill
23
Common stock
Additional paid-in capital
Retained earnings
_____
Total equity
Total assets
$ 158
Total liabilities and equity
$ 38
15
45
60
120
$ 158
$ 50
(15)
35
$
1
(3)
(10)
2
10
$ 45
b.
Consolidation Working Paper (in millions)
Accounts Taken
From Books
Panoz
Shelby
Dr(Cr)
Dr(Cr)
Cash and receivables
Inventory
Property and equipment, net
Investment in Shelby
10
Eliminations
Dr
Cr
(R) 1
Consolidated
Balances Dr(Cr)
$
16
40
10
3 (R)
47
350
100
10 (R)
440
50
--
15 (E)
--
35 (R)
Goodwill
--
--
(60)
(20)
(200)
(80)
(R) 2
(278)
Capital stock
(120)
(10)
(E) 10
(120)
Retained earnings
(100)
(6)
(E) 6
(100)
AOCI
10
(1)
(E) 1
10
Treasury stock
20
____
$ 65
Current liabilities
Total
(R) 45
45
(80)
2 (E)
$ 65
20
$
c.
Panoz Corporation and Subsidiary
Consolidated Balance Sheet
Date of Acquisition
Assets
Liabilities
Cash and receivables
$ 16
Current liabilities
Inventory
47
Long-term liabilities
Property and equipment, net
440
Total liabilities
Goodwill
45
Stockholders equity
Capital stock
Retained earnings
Accumulated other
comprehensive income
Treasury stock
____
Total equity
Total assets
$ 548
Total liabilities and equity
$ 80
278
358
120
100
(10)
(20)
190
$ 548
E3.11 Consolidation with Previously Unrecorded Intangibles and Goodwill (see related
E2.8)
(all amounts in thousands)
a.
Acquisition cost
Ciber book value
Excess of acquisition cost over book value
Excess of fair value over book value:
Current assets
Plant and equipment, net
Licenses and trademarks
Long term liabilities
Customer contracts
Brand names
Favorable leases
Developed technology
In-process R&D
Goodwill
$50,000
(6,600)
$43,400
$ (100)
(8,000)
2,000
(1,000)
1,000
5,000
400
1,500
300
(1,100)
$42,300
b.
Consolidation Working Paper (in thousands)
Accounts Taken
From Books
Current assets
Plant and equipment, net
Licenses and trademarks
Investment in Ciber
Brightcove
Dr(Cr)
$ 70,000
200,000
-50,000
Ciber
Dr(Cr)
$
400
12,000
5,000
--
Customer contracts
Brand names
Favorable leases
Developed technology
In-process R&D
Goodwill
Current liabilities
Long-term liabilities
Capital stock
Retained earnings
Total
------(80,000)
(150,000)
(35,000)
(55,000)
$
0
------(800)
(10,000)
(8,000)
1,400
$
0
Eliminations
Dr
(R) 2,000
(R) 1,000
(R) 5,000
(R) 400
(R) 1,500
(R) 300
(R) 42,300
(E) 8,000
_______
$ 60,500
Consolidated
Cr
Balances Dr(Cr)
100 (R)
$ 70,300
8,000 (R)
204,000
7,000
6,600 (E)
-43,400 (R)
1,000
5,000
400
1,500
300
42,300
(80,800)
1,000 (R)
(161,000)
(35,000)
1,400 (E)
(55,000)
$ 60,500
$
0
c.
Brightcove, Inc. and Subsidiary
Consolidated Balance Sheet
Date of Acquisition
Assets
Liabilities
Current assets
$ 70,300
Current liabilities
Plant and equipment, net
204,000
Long-term liabilities
Licenses and trademarks
7,000
Total liabilities
Other identifiable intangible
assets
8,200
Goodwill
42,300
Stockholders equity
Capital stock
Retained earnings
________
Total equity
Total assets
$ 331,800
Total liabilities and equity
$ 80,800
161,000
241,800
35,000
55,000
90,000
$ 331,800
$ 111
(10)
(25)
$ 76
(37)
$ 39
b. Acquisition cost
Less: Goodwill
Fair value of Bays identifiable net assets
Fair value of Bays identifiable assets (from a. above)
Less: Fair value of Bays identifiable net assets
Fair value of Bays liabilities
$ 65
(37)
$ 28
$ 39
(28)
$ 11
$ 28
(16)
$ 12
d.
(E)
Stockholders equityBay
Investment in Bay
12
(R)
Identifiable intangibles
Goodwill
Investment in Bay
16
37
12
53
b. Without any other information, B is not a VIE. D is the sole owner of B through its
100% equity ownership, and should consolidate B under ASC Topic 810. Although
contractual and other arrangements may suggest that B is a VIE, the problem is silent
on these matters. The point here is that a small proportion of equity does not
automatically lead to the conclusion that the equity holders are not exposed to the
usual risks and rewards of stock ownership.
c. The 15% equity could be enough to avoid identifying A as a VIE, if there is evidence
that A can obtain financing on its own, has a level of equity comparable to other
entities who can obtain financing on their own, or that its equity is deemed adequate
to absorb As expected losses. In that case, E is the controlling investor and C does not
consolidate A.
If A cannot obtain financing on its own, or its equity is not sufficient to absorb
expected losses, A is a VIE. C has the decision making power, and by agreeing to
compensate E for any of As losses, C absorbs significant losses. Therefore C is likely
As primary beneficiary and should consolidate A.
d. Bs stockholders equity is insulated from losses by the guarantees provided by C and
D. Moreover, Ds unsecured loan to B provides additional subordinated financial
support. These factors indicate that B is a VIE. D has decision making power
through its control of Bs board. Losses in guaranteed residual values on Ds
specialized property, and its unsecured loan to B, require D to absorb a potentially
significant amount of Bs losses. Therefore it is likely that D is Bs primary
beneficiary and must consolidate B.
E3.14 Identification of Variable Interest Entity and Primary Beneficiary
a.
Present
Value
Prob.
$ 11
33
55
$ 10
30
50
0.40
0.20
0.40
Expected
PV
$
4
6
20
$ 30
Investment
Fair Value
Residual
Returns
$ 30
30
30
$ (20)
-20
Expected
Gains
Expected
Losses
$
$
$
8
8
(8)
_____
$ (8)
Because the $4,000,000 equity interest is insufficient to absorb the expected losses of
$8,000,000 computed above, the quantitative analysis indicates that Startek is a VIE.
b.
Softek must have (1) the power to direct Starteks activities that most significantly
affect its economic performance, and (2) be exposed to the losses and benefits that are potentially
significant to Startek. Because Softek guarantees Starteks debt, it probably meets requirement
(2). However, we dont have enough information to assess Softeks decision making power over
Startek.
E3.15 Consolidation Policy: U.S. GAAP and IFRS
a. Randolph owns 64% of the voting rights [0.64 = (0.8 x 0.60) + (0.4 x 0.40)], and
meets the majority ownership test for consolidation of ASC Topic 810.
b. IFRS also recognizes the legal control signified by ownership of 64% of the voting
rights and consolidation would occur.
c. Randolphs ownership of the Class A shares produces 48% (= 0.8 x .60) of the voting
interest. U.S. GAAP emphasizes majority ownership of the voting stock, so
consolidation is unlikely. IFRS looks for control, regardless of equity ownership.
The other investor owns 40% of the voting rights. Thus Randolph does not control
the voting rights and decision-making authority appears to be shared. However, the
influence of the other 12% of the Class A shares voting rights must be examined. If
Randolph can demonstrate sufficient influence over that other 12% to dominate
Marshalls governing board, effective control may exist, requiring consolidation
under IFRS.
d. Now Randolph owns 42% (= 0.7 x 0.60) of the voting interest and all other interests
are dispersed. These facts suggest that Randolph can dominate Marshalls governing
board thereby possessing unshared decision-making power and consolidation would
be required under IFRS. Randolph does not have majority ownership, and
consolidation under U.S. GAAP is unlikely.
PROBLEMS
P3.1
$ 400
25
$ 425
$ (35)
(1)
65
100
129
$ 296
b.
(E)
Common stock
5
Additional paid-in capital
15
Investment in Sherwood
25
Retained earnings
Accumulated other comprehensive loss
Treasury stock
To eliminate Sherwoods equity accounts and the book value portion of the
investment account.
40
2
3
(R)
Customer lists
65
Brand names
100
Goodwill
296
Fixed assets, net
35
Liabilities
1
Investment in Sherwood
425
To revalue Sherwoods assets and liabilities to fair value and eliminate the remainder
of the investment account.
P3.2
112
5
2
55
2
58
(1) APIC = fair value of shares issued par value of shares issued registration fees:
$55 = $60 $2 $3
b.
Consolidation Working Paper (in millions)
Current assets
Property, plant and
equipment, net
Investment in GOC
Accounts Taken
From Books
ITI
GOC
Dr (Cr)
Dr (Cr)
$
142
$
10
Goodwill
Current liabilities
Long-term liabilities
Common stock, par
Additional paid-in capital
Retained earnings
Accumulated other
comprehensive income
Treasury stock
Total
500
112
130
1,300
20
(150)
(1,202)
(22)
(605)
(95)
(20)
(100)
(4)
(60)
25
15
5
0
(3)
2
0
Eliminations
Dr
(R) 5
Consolidated
Balances Dr (Cr)
$ 157
Cr
60 (R)
40 (E)
72 (R)
(R) 10
(R) 5
(R) 25
(R) 90
1,360
3 (R)
(E) 4
(E) 60
25 (E)
(E) 3
_____
$ 202
570
--
2 (E)
$ 202
90
(170)
(1,305)
(22)
(605)
(95)
15
5
0
P3.3
55,873
101
91
55,782
101
b.
Acquisition cost
Pharmacia book value
Excess of acquisition cost over book value
Excess of fair value over book value:
Inventory
Long-term investments
Property, plant and equipment
In-process R&D
Developed technology rights
Long-term debt
Other assets
Goodwill
c. (E)
Stockholders equityPharmacia
Investment in Pharmacia
(R)
Inventory
Long-term investments
In-process R&D
Developed technology rights
Goodwill
Property, plant and equipment
Long-term debt
Other assets
Investment in Pharmacia
$55,873
(7,236)
$48,637
$
2,939
40
(317)
5,052
37,066
(1,841)
(15,606)
27,333
$21,304
7,236
7,236
2,939
40
5,052
37,066
21,304
317
1,841
15,606
48,637
P3.4
$ 1,800
(1,295)
$ 505
$ 100
(50)
245
300
110
$
705
200
b.
Consolidation Working Paper
Accounts Taken
From Books
Paxon
Saxon
Dr (Cr)
Dr (Cr)
$ 1,060
$ 720
1,700
900
-300
2,000
Land
Buildings and equipment
Accumulated depreciation
Current liabilities
Long-term debt
Common stock, par value
Additional paid-in capital
Retained earnings
Total
650
3,400
(1,000)
(1,500)
(2,000)
(500)
(1,200)
(2,610)
$
0
175
600
-(1,000)
(400)
(100)
(350)
(845)
$
0
Eliminations
Dr
(R) 100
(R) 245
(R) 300
(R) 110
(E) 100
(E) 350
(E) 845
$ 2,050
Consolidated
Balances Dr (Cr)
$ 1,780
2,700
50 (R)
250
1,295 (E)
-705 (R)
1,070
4,300
(1,000)
(2,500)
(2,290)
(500)
(1,200)
______
(2,610)
$ 2,050
$
0
Cr
c.
Paxon Corporation and Subsidiary
Consolidated Balance Sheet
January 1, 2016
Assets
Liabilities
Cash and receivables
$ 1,780
Current liabilities
Inventory
2,700
Long-term debt
Long-term investments
250
Total liabilities
Land
1,070
Buildings and equipment, net
of $1,000 accumulated
depreciation
3,300
Stockholders equity
Common stock, par value
Additional paid-in capital
Retained earnings
_______
Total equity
Total assets
$ 9,100
Total liabilities and equity
P3.5
$ 2,500
2,290
4,790
500
1,200
2,610
4,310
$ 9,100
15,000
60
200
14,400
460
b.
Acquisition cost
Statics book value
Excess of acquisition cost over book value
Excess of fair value over book value:
Cash and receivables
Inventory
Equity method investments
Plant assets, net
Copyrights
Goodwill (1)
Noncurrent liabilities
Goodwill
$ 15,000
(4,000)
$ 11,000
$ (200)
(400)
2,400
(2,100)
2,800
(500)
100
$
2,100
8,900
(1) All pre-existing goodwill is eliminated, even though it may be deemed to have a non-zero fair value.
c.
d.
Progressive Corporation and Subsidiary
Consolidated Balance Sheet
June 30, 2016
Assets
Liabilities
Cash and receivables
$ 9,340
Current liabilities
Inventory
9,000
Long-term debt
Equity method investments
3,000
Total liabilities
Plant assets, net
11,500
Copyrights
4,000
Stockholders equity
Goodwill
8,900
Common stock, par
Additional paid-in capital
Retained earnings
_______
Total equity
Total assets
$ 45,740
Total liabilities and equity
$ 8,000
7,200
15,200
300
15,300
14,940
30,540
$ 45,740
P3.6
Current assets
Property, plant and
equipment, net
Investment in Webnet
50
200
--
Consol.
Balances Dr (Cr)
$
20
100
41 (E)
--
159 (R)
Patents
Goodwill
Current liabilities
Long-term debt
Common stock, par
Additional paid-in capital
Retained earnings
Total
5
-(4)
(20)
(3)
(224)
(14)
$
0
5
-(4)
(20)
(2)
(25)
(14)
$
0
(R) 159
(E) 2
(E) 25
(E) 14
$ 200
_____
$ 200
10
159
(8)
(40)
(3)
(224)
(14)
$
0
b.
Current assets
Property, plant and
equipment, net
Investment in Microtech
Patents
Developed technology
Client relationships
Goodwill
Current liabilities
Long-term debt
Common stock, par
Additional paid-in capital
Retained earnings
Total
50
200
--
5
---(4)
(20)
(3)
(224)
(14)
$
0
5
---(4)
(20)
(2)
(25)
(14)
$
0
(R) 20
Consol.
Balances Dr (Cr)
$
20
120
41 (E)
159 (R)
(R) 10
(R) 100
(R) 29
(E)
2
(E) 25
(E) 14
_____
$
200 $ 200
-20
100
29
-(8)
(40)
(3)
(224)
(14)
$
0
Webnet
acquires
Microtech
20
100
10
159
$ 289
8
40
48
3
224
14
241
$ 289
20
120
149
-$ 289
8
40
48
3
224
14
241
$ 289
Both sets of consolidated balances report the same total assets and the same
individual liabilities and equities. However, the individual asset accounts differ. The
acquirers assets are not revalued to fair value, nor are previously unreported assets
recognized. Microtech has understated property, plant and equipment and patents, as
well as unreported identifiable intangible assets. Webnet Solutions assets and
liabilities are reported at amounts approximating fair value, and there are no
identifiable intangibles. When Microtech is the acquirer, the difference between
Webnet Solutions acquisition price and reported book value is reported as goodwill,
and the difference between book and fair value of Microtechs assets is not
recognized. When Webnet Solutions is the acquirer, its goodwill is not recognized,
but Microtechs property and patents are reported at fair value, and its identifiable
intangibles are recognized.
Does management want the $159 million excess of acquisition cost over book value
to be reported as the unspecified asset goodwill, or distributed among several
identifiable assets (property, plant and equipment, patents, client relationships)? If
Webnet Solutions is the acquirer, Microtechs previously unreported identifiable
assets will come to light. To the extent that the existence of identifiable intangibles
such as developed technology and client relationships indicate favorable future
earnings potential, investors may view the new disclosures as a positive signal,
increasing stock price. If Microtech is the acquirer, no identifiable intangibles are
recognized, and investors may wonder if Webnet Solutions will sustain its value in
the future, as these assets would seem to be the lifeblood of a technology company.
Management will also consider the implications for future income. Identifiable assets
usually have limited lives and are depreciated or amortized over time, reducing
earnings on a regular basis. Goodwill is tested for impairment loss, and may never be
written off. If Microtech is the acquirer, future reported income may be higher
because there are no identifiable intangibles to be amortized.
Note to instructor: This problem illustrates the games companies can play to choose
between different financial statement displays of the same transaction economics.
P3.7
interclick
$ 258,501
$ 42,700
35,600
600
171,641
Tumblr
$ 990,211
$182,400
23,700
(250,541)
$ 7,960
56,500
751,765
(1,014,365)
$
(24,154)
b. The fair values of Tumblrs liabilities are greater than the fair values of their tangible
assets. Since net book values are positive, and book values of liabilities are generally
close to fair value, the cause is likely to be a decline in the fair value of tangible
assets. For technology companies, tangible assets such as equipment are likely to
lose resale value quickly. Yahoo lists identifiable intangibles acquired as customer
contracts, developed technology, trade names, trademarks, and domain names. Value
is derived almost exclusively from the future earnings potential of these intangible
assets, not the tangible assets.
c. interclick eliminations:
(E)
Stockholders equityinterclick
Investment in interclick
10,000
10,000
(R)
Customer contracts and related relationships
Developed technology
Trade name, trademark, and domain name
Goodwill
Tangible net assets (1)
Investment in interclick
42,700
35,600
600
171,641
2,040
248,501
(1) $10,000 $7,960 = $2,040. The fair value of tangible net assets is $2,040 less than book value,
requiring a credit of $2,040 to revalue them to fair value.
Tumblr eliminations:
(E)
Stockholders equityTumblr
Investment in Tumblr
50,000
50,000
(R)
Customer contracts and related relationships
Developed technology
Trade name, trademark, and domain name
Goodwill
Tangible net assets (2)
Investment in Tumblr
182,400
23,700
56,500
751,765
74,154
940,211
(2) $50,000 + $24,154 = $74,154. The fair value of tangible net assets is $(24,154), while book value
is $50,000. Therefore the fair value of tangible net assets is $74,154 less than book value, requiring a
credit of $74,154 to revalue them to fair value.
P3.8
8,000,000
8,000,000
2,000,000
6,000,000
28,000,000
4,000,000
32,000,000
b.
Sonara Company
Balance Sheet, Date of Acquisition
$ 1,000,000
Liabilities (3)
24,000,000
Stockholders equity
Total liabilities and
$ 25,000,000
equity
$ 17,000,000
8,000,000
$ 25,000,000
P3.9
34,008
100
20,203
13,905
d.
Acquisition cost (see a. above)
Grupo Modelos book value
Excess of acquisition cost over book value
Excess of fair value over book value (2):
Property, plant and equipment
Goodwill
Intangible assets
Investment in associates
Investment securities
Current assets
Employee benefits
Trade and other payables
Deferred tax liabilities
Current liabilities
Goodwill
$ 34,008
(9,203)
$ 24,805
$
99
(796)
4,454
(4)
-4,333
-(509)
(714)
(1,650)
(5,213)
$ 19,592
e. (E)
Stockholders equityGrupo Modelo
Investment in Grupo Modelo
(R)
Property, plant and equipment
Intangible assets
Current assets
Goodwill (new)
Goodwill (old)
Investment in associates
Trade and other payables
Deferred tax liabilities
Current liabilities
Investment in Grupo Modelo
9,203
9,203
99
4,454
4,333
19,592
796
4
509
714
1,650
24,805
35,000
1,200
34,400
1,800
The account balances for Prince, shown in the working paper below, reflect the above
entry. Merger expenses reduce retained earnings, a component of stockholders
equity.
Consolidation Working Paper (in thousands)
Accounts Taken
From Books
Cash
Accounts receivable
Parts inventory
Vehicle inventory
Equipment, net
Investment in Squire
Intangible: Lease
Intangible: Service
contracts
Intangible: Trade name
Goodwill
Current liabilities
Long-term liabilities
Stockholders equity
Total
Eliminations
Prince
Dr (Cr)
$ 1,000
6,000
-15,000
40,000
35,000
Squire
Dr (Cr)
$
300
2,700
5,200
-17,600
--
--
--
---(5,000)
(25,000)
(67,000)
$
0
---(3,100)
(8,600)
(14,100)
$
0
Dr
(R)
Consolidated
Balances Dr (Cr)
$
1,300
100 (R)
8,600
6,000
15,000
59,500
14,100 (E)
-20,900(R)
1,250
Cr
800
(R) 1,900
(R) 1,250
(R) 2,000
(R) 200
(R)14,250
(R) 600
(E)14,100
$ 35,100
_______
$ 35,100
2,000
200
14,250
(8,100)
(33,000)
(67,000)
$
0
b. If Prince records the acquisition as a statutory merger, Prince makes the following
entry (in thousands):
Cash
Accounts receivable
Parts inventory
Equipment, net
Intangible: Lease
Intangible: Service contracts
Intangible: Trade name
Goodwill
Merger expenses
Cash
Current liabilities
Long-term liabilities
Capital stock
300
2,600
6,000
19,500
1,250
2,000
200
14,250
1,200
1,800
3,100
8,000
34,400
When the above entry is reflected in Princes account balances, Princes balance sheet
account balances are identical to those shown in the consolidated column of the
working paper for a stock acquisition.
P3.12 Consolidation Policy for Equity Investments: U.S. GAAP and IFRS
Case
(1)
(2)
(3)
(4)
(5)
(6)
U.S. GAAP
Do not consolidate
Do not consolidate
Do not consolidate
Do not consolidate
Do not consolidate
Do not consolidate
IFRS
Consolidate
Consolidate
Consolidate
Possibly consolidate
Possibly consolidate
Possibly consolidate
There is no evidence that Benson is a VIE. Therefore the consolidation standards for
equity investments apply. Under ASC Topic 810, consolidation is generally not
appropriate, as no case has majority ownership and there is little guidance to determine
control when the investor holds a minority of the stock. Under IFRS, there is guidance to
determine if control exists with minority stock ownership.
220,000
500
119,300
96,200
5,000
Reversing this entry out of Piedmonts balance sheet produces its balance sheet just
prior to the acquisition:
Piedmont Corporation
Balance Sheet, Immediately Prior to Date of Acquisition
Current assets (3)
$ 136,200
Liabilities (4)
Plant assets, net
360,000
Capital stock (5)
________
Retained earnings (6)
Total assets
$ 496,200
Total liabilities and equity
$ 215,000
180,700
100,500
$ 496,200
b. (E)
Capital stock
Retained earnings
Investment in Stearns
(R)
Identifiable intangibles
Goodwill
Plant assets, net (7)
Investment in Stearns
40,000
25,000
15,000
100,000
135,000
30,000
205,000
c.
Acquisition cost
Stearns book value
Excess of acquisition cost over book value
Excess of fair value over book value:
Plant assets, net
Identifiable intangibles
Goodwill
$ 220,000
(15,000)
$ 205,000
$ (30,000)
100,000
(70,000)
$ 135,000
$ 41,250
(5,000)
36,250
$ 200
(7,000)
2,600
2,400
5,000
1,000
(4,200)
$ 32,050
Note: The skilled workforce and future synergies are not capitalized separately but
are included in goodwill.
b.
Consolidation Working Paper (in thousands)
Accounts Taken
From Books
Current assets
Fixed assets, net
Investment in GP
Trademarks
Other identifiable
intangibles
Goodwill
Current liabilities
Long-term liabilities
Common stock, par
Additional paid-in capital
Retained earnings
AOCI
Treasury stock
Total
International
Auto
Dr (Cr)
$ 22,900
420,000
41,250
Eliminations
Genuine
Parts
Dr (Cr)
$ 1,000
27,000
--
Dr
(R) 200
89,000
3,400
(R) 2,600
--
--
(R) 2,400
(R) 5,000
(R)32,050
-(25,000)
(350,250)
(10,000)
(143,100)
(43,800)
(4,000)
3,000
$
0
-(400)
(26,000)
(500)
(8,500)
2,000
1,400
600
$
0
Consolidated
Balances
Cr
Dr (Cr)
$
24,100
7,000 (R)
440,000
5,000 (E)
-36,250 (R)
95,000
7,400
(R) 1,000
(E) 500
(E) 8,500
_______
$ 52,250
2,000 (E)
1,400 (E)
600 (E)
$ 52,250
32,050
(25,400)
(375,250)
(10,000)
(143,100)
(43,800)
(4,000)
3,000
$
0
41,250
1,200
2,000
33,100
7,100
250
c.
International Auto and Subsidiary
Consolidated Balance Sheet, Date of Acquisition
Assets
Current assets
Fixed assets, net
Trademarks
Other identifiable intangibles
Goodwill
Total assets
$ 24,100
440,000
95,000
7,400
32,050
________
$ 598,550
Liabilities
Current liabilities
Long-term liabilities
Total liabilities
Stockholders equity
Common stock, par
Additional paid-in capital
Retained earnings
Accumulated other
comprehensive income
Treasury stock
Total stockholders equity
Total liabilities and equity
25,400
375,250
400,650
10,000
143,100
43,800
4,000
(3,000)
197,900
$ 598,550
P3.15 Consolidated Balance Sheet Working Paper, Bargain Gain, Special Issues
(in thousands)
a.
Acquisition cost
Steamobiles book value
Excess of book value over acquisition cost
Excess of fair value over book value:
Current assets
Fixed assets, net (1)
Identifiable intangibles
Goodwill (old)
Liabilities
Bargain gain
$ 20,000
(30,000)
(10,000)
$ (2,000)
30,000
6,000
(35,000)
(1,000)
2,000
$ 8,000
b.
Consolidation Working Paper (in thousands)
Accounts Taken
From Books
Packard
Dr (Cr)
$ 15,000
500,000
(160,000)
28,000
--(215,000)
(90,000)
(78,500)
500
$
0
Current assets
Fixed assets
Accumulated depreciation
Investment in Steamobile
Identifiable intangibles
Goodwill
Liabilities
Capital stock
Retained earnings
AOCI
Total
Eliminations
Steamobile
Dr (Cr)
$ 5,000
150,000
(40,000)
-35,000
(120,000)
(35,000)
5,800
(800)
$
0
Dr
(R) 30,000
(R) 40,000
(R) 2,000
(R) 6,000
Cr
2,000(R)
40,000(R)
30,000(E)
35,000(R)
1,000(R)
(E )35,000
5,800(E)
(E)
800 _______
$ 113,800 $ 113,800
Consolidated
Balances
Dr (Cr)
$ 18,000
640,000
(160,000)
-6,000
-(336,000)
(90,000)
(78,500)
500
$
0
28,000
20,000
8,000
Total assets
18,000
480,000
6,000
________
$ 504,000
Liabilities
Liabilities
Stockholders equity
Capital stock
Retained earnings
Accumulated other
comprehensive income
Total stockholders equity
Total liabilities and equity
$ 336,000
90,000
78,500
(500)
168,000
$ 504,000