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    Indra Pramana
    This document provides information to allocate the difference between the implied value and book value of assets acquired by Porter Company in its purchase of 80% of Salem Company. The difference of $432,500 is allocated to equipment ($130,000), land ($65,000), inventory ($40,000), and goodwill ($197,500). Workpaper entries are provided to record the acquisition, depreciate equipment, and recognize impairment of goodwill over multiple years. Consolidated financial statements are presented that eliminate intercompany transactions and noncontrolling interests.

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    5 15

    Uploaded by

    Indra Pramana
    284 views8 pages
    This document provides information to allocate the difference between the implied value and book value of assets acquired by Porter Company in its purchase of 80% of Salem Company. The difference of $432,500 is allocated to equipment ($130,000), land ($65,000), inventory ($40,000), and goodwill ($197,500). Workpaper entries are provided to record the acquisition, depreciate equipment, and recognize impairment of goodwill over multiple years. Consolidated financial statements are presented that eliminate intercompany transactions and noncontrolling interests.

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    This document provides information to allocate the difference between the implied value and book value of assets acquired by Porter Company in its purchase of 80% of Salem Company. The difference of $432,500 is allocated to equipment ($130,000), land ($65,000), inventory ($40,000), and goodwill ($197,500). Workpaper entries are provided to record the acquisition, depreciate equipment, and recognize impairment of goodwill over multiple years. Consolidated financial statements are presented that eliminate intercompany transactions and noncontrolling interests.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    284 views8 pages

    5 15

    Uploaded by

    Indra Pramana
    This document provides information to allocate the difference between the implied value and book value of assets acquired by Porter Company in its purchase of 80% of Salem Company. The difference of $432,500 is allocated to equipment ($130,000), land ($65,000), inventory ($40,000), and goodwill ($197,500). Workpaper entries are provided to record the acquisition, depreciate equipment, and recognize impairment of goodwill over multiple years. Consolidated financial statements are presented that eliminate intercompany transactions and noncontrolling interests.

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    © All Rights Reserved
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    of 8

    Problem 5-15

    Computation and Allocation of Difference Schedule


    Parent
    Share
    Purchase price and implied value
    Less: Book value of equity acquired
    Difference between implied and book value
    Equipment
    Land
    Inventory
    Balance
    Goodwill
    Balance

    $850,000
    504,000
    346,000
    (104,000)
    (52,000)
    (32,000)
    158,000
    (158,000)
    -0-

    NonControlling
    Share
    212,500
    126,000
    86,500
    (26,000)
    (13,000)
    (8,000)
    39,500
    (39,500)
    -0-

    Entire
    Value
    1,062,500 *
    630,000
    432,500
    (130,000)
    (65,000)
    (40,000)
    197,500
    (197,500)
    -0-

    *$850,000/.80
    Complete Equity Method Workpaper entries Year 2010
    (1) Equity in Subsidiary Income (($100,000)(.80) $32,000 $20,800)
    Dividends Declared ($25,000 .80)
    Investment in Salem Company
    To eliminate intercompany dividends

    27,200
    20,000
    7,200

    (2) Beginning Retained Earnings - Salem Co.


    Common Stock - Salem
    Difference between Implied and Book Value
    Investment in Salem Company
    Noncontrolling Interest
    To eliminate investment account and create noncontrolling interest account

    80,000
    550,000
    432,500
    850,000
    212,500

    (3) Cost of Goods Sold


    Land
    Plant and Equipment (5 year life)
    Goodwill
    Difference between Implied and Book Value
    To allocate the difference between implied and book value

    40,000
    65,000
    130,000
    197,500
    432,500

    (4) Depreciation Expense ($130,000/5)


    Plant and Equipment

    26,000
    26,000

    Problem 5-15 (continued)


    Complete Equity Method Worksheet Entries Year 2011
    (1) Equity in Subsidiary Income ($110,000)(.80) - $20,800
    Dividends Declared ($35,000 .80)
    Investment in Salem Company
    To eliminate intercompany dividends and income

    67,200
    28,000
    39,200

    (2) Beginning Retained Earnings - Salem Co. ($80,000 + $75,000)


    Common Stock - Salem
    Difference between Implied and Book Value
    Investment in Salem Company ($850,000 + $80,000 $20,000)
    Noncontrolling Interest ($212,500 + ($155,000 - $80,000) .2)
    To eliminate investment account and create noncontrolling interest account

    155,000
    550,000
    432,500
    910,000
    227,500

    (3) Investment in Salem Company


    Noncontrolling Interest
    Land
    Plant and Equipment (5 year life)
    Goodwill
    Difference between Implied and Book Value
    To allocate the difference between implied and book value

    32,000
    8,000
    65,000
    130,000
    197,500
    432,500

    (4) Investment in Salem Company


    Noncontrolling Interest
    Depreciation Expense ($130,000/5)
    Plant and Equipment

    20,800
    5,200
    26,000
    52,000

    Problem 5-15 (continued)


    Part C
    T-account Calculation of Controlling and Noncontrolling Interest in Consolidated Income
    For Year Ended December 31, 2012
    Noncontrolling Interest in Consolidated Income
    Additional depreciation
    of the difference between implied and
    Net income reported by Salem Company
    book value related to:
    Depreciation Expense ($130,000/5)
    26,000
    Goodwill Impairment ($197,500 - $150,000) 47,500
    Adjusted income of Salem
    Noncontrolling Ownership percentage interest
    Noncontrolling Interest in Consolidated Income

    170,000

    96,500
    20%
    19,300

    Controlling Interest in Consolidated Income


    Porter Company's net income from its independent
    operations ($177,200 reported net income
    less $77,200 equity in subsidiary income
    included therein)
    $100,000
    Porter Company's share of the adjusted income of
    Salem Company (.8 X $96,500)

    Controlling interest in Consolidated Net Income

    77,200

    $177,200

    Problem 5-15 (continued)


    Part D
    Income Statement
    Sales
    Equity in Subsidiary Income
    Total Revenue
    Cost of Goods Sold
    Depreciation Expense
    Impairment Loss
    Other Expenses
    Total Cost and Expense
    Net/Consolidated Income
    Noncontrolling Interest in Consolid. Income
    Net Income to Retained Earnings
    Retained Earnings Statement
    1/1 Retained Earnings:
    Porter Company
    Salem Company
    Net Income from Above
    Dividends Declared:
    Porter Company
    Salem Company
    12/31/ Retained Earnings to Balance Sheet

    Porter
    Salem
    Company Company

    Eliminations
    Debit
    Credit

    Noncontrolling Consolidated
    Interest
    Balances

    $1,100,000 $450,000
    77,200
    (1) 77,200
    1,177,200 450,000
    900,000 200,000
    40,000
    30,000 (4) 26,000
    (5) 47,500
    60,000
    50,000
    1,000,000 280,000
    177,200 170,000
    $177,200 $170,000

    $150,700

    $1,550,000

    $0

    19,300*
    $19,300

    $546,400

    $546,400

    $230,000 (2) 230,000


    177,200 170,000
    150,700

    19,300

    (90,000)
    (60,000)
    $633,600 $340,000

    1,550,000
    1,100,000
    96,000
    47,500
    110,000
    1,353,500
    196,500
    (19,300)
    $177,200

    177,200
    (90,000)

    $380,700

    (1) 48,000
    $48,000

    (12,000)
    $7,300

    $633,600

    Problem 5-15 (continued)


    Balance Sheet
    Cash
    Accounts Receivable
    Inventory
    Investment in Salem Comp.

    Porter
    Salem
    Company Company
    $70,000
    $65,000
    260,000
    190,000
    240,000
    175,000
    925,600
    (3)
    (4)

    Difference between Implied and Book Value


    Land
    320,000
    Plant and Equipment
    360,000
    280,000
    Goodwill
    Total Assets
    $1,855,600 $1,030,000
    Accounts Payable
    Notes Payable
    Common stock:
    Porter Company
    Salem Company
    Retained earnings from above
    1/1 Noncontrolling Interest in Net
    Assets
    12/31 Noncontrolling Interest in
    Net Assets
    Total Liabilities and Equity

    $132,000
    90,000

    (2)
    (3)
    (3)
    (3)

    Eliminations
    Debit
    Credit

    32,000 (1)
    41,600 (2)

    29,200
    970,000

    432,500 (3)
    65,000
    130,000 (4)
    197,500 (5)

    432,500

    Noncontrolling Consolidated
    Interest
    Balances
    $135,000
    450,000
    415,000

    385,000
    692,000
    150,000
    $2,227,000

    78,000
    47,500

    $110,000
    30,000

    $242,000
    120,000

    1,000,000
    633,600

    1,000,000
    550,000 (2)
    340,000
    (3)
    (4)

    $1,855,600 $1,030,000

    550,000
    380,700
    8,000 (2)
    10,400

    $1,847,700

    48,000
    242,500 **

    $1,847,700

    * Noncontrolling Interest in Income =.2 $170,000 (.2 x $26,000) (.2 x $47,500) = $19,300
    ** $212,500 + ($230,000 $80,000) x .20 = $242,500
    Explanations of workpaper entries are on the following page

    7,300
    224,100

    633,600

    $231,400

    231,400
    $2,227,000

    Problem 5-15 (continued)


    Computation and Allocation of Difference Schedule
    Parent
    Share
    Purchase price and implied value
    Less: Book value of equity acquired
    Difference between implied and book value
    Equipment
    Land
    Inventory
    Balance
    Goodwill
    Balance

    $850,000
    504,000
    346,000
    (104,000)
    (52,000)
    (32,000)
    158,000
    (158,000)
    -0-

    NonControlling
    Share
    212,500
    126,000
    86,500
    (26,000)
    (13,000)
    (8,000)
    39,500
    (39,500)
    -0-

    Entire
    Value
    1,062,500 *
    630,000
    432,500
    (130,000)
    (65,000)
    (40,000)
    197,500
    (197,500)
    -0-

    *$850,000/.80
    Explanations of workpaper entries:
    (1) Equity in Subsidiary Income
    Dividends Declared ($60,000 .8)
    Investment in Salem Company
    To reverse the effect of parent company entries during the year for subsidiary
    dividends and income

    77,200
    48,000
    29,200

    (2) Beginning Retained Earnings - Salem Co.


    Common Stock Salem
    Difference between Implied and Book Value
    Investment in Salem Company
    Noncontrolling Interest
    To eliminate investment account and create noncontrolling interest account

    230,000
    550,000
    432,500
    970,000
    242,500

    (3) Investment in Salem Company


    Noncontrolling Interest
    Land
    Plant and Equipment
    Goodwill
    Difference between Implied and Book Value
    To allocate the difference between implied and book value

    32,000
    8,000
    65,000
    130,000
    197,500
    432,500

    (4) Investment in Salem Company (2)($20,800)


    Noncontrolling Interest (2)($5,200)
    Depreciation Expense ($130,000/5)
    Plant and Equipment, net

    41,600
    10,400
    26,000
    78,000

    (5) Impairment Loss ($197,500 - $150,000)


    Goodwill
    To record goodwill impairment

    47,500
    47,500

    Problem 5-15 - Part E


    PORTER COMPANY AND SUBSIDIARY
    Consolidated Financial Statements
    For the Year Ended December 31, 2012
    Consolidated Income Statement
    Sales
    Cost of Goods Sold
    Gross Profit
    Expenses:
    Depreciation Expense
    Impairment Loss
    Other Expenses
    Consolidated Income
    Noncontrolling Interest in Consolidated Income
    Net Income

    $1,550,000
    1,100,000
    450,000
    $96,000
    47,500
    110,000

    Consolidated Statement of Retained Earnings


    Retained Earnings - Beginning of Year
    Add: Net Income

    253,500
    196,500
    19,300
    $177,200
    $546,400
    177,200
    723,600
    90,000
    $633,600

    Less Dividends
    Retained Earnings - End of Year
    PORTER COMPANY AND SUBSIDIARY
    Consolidated Statement of Financial Position
    December 31, 2012
    Assets
    Current Assets:
    Cash
    Accounts Receivable
    Inventory
    $1,000,000
    Noncurrent Assets:
    Plant and Equipment (net)
    Land
    Goodwill
    1,227,000
    Total Assets
    Liabilities And Stockholders' Equity
    Liabilities:
    Accounts Payable
    Notes Payable
    Total Liabilities
    Stockholders' Equity
    Noncontrolling Interest in Net Assets
    Capital Stock
    Retained Earnings

    $135,000
    450,000
    415,000

    692,000
    385,000
    150,000
    $2,227,000

    $242,000
    120,000
    362,000
    231,400
    1,000,000
    633,600
    1,865,000

    Total Liabilities and Stockholders' Equity

    $2,227,000

    Part F If the subsidiary uses the LIFO assumption in pricing its inventory, a workpaper entry would
    be made each year debiting Inventory and crediting the Difference between Implied and Book
    Value, so long as there was no reduction in inventory quantities. The effect on the
    consolidated balances would be an additional $40,000 in inventory, with a corresponding
    additional $32,000 and $8,000 in the investment account and noncontrolling interest. The
    increase in inventory results from the additional amount assigned to the inventory account at
    acquisition, and will remain there because of the LIFO assumption. The investment account
    and noncontrolling interest account are increased because under the LIFO assumption the
    $40,000 additional inventory has not passed through cost of goods sold.
    Part G Porter Company's retained earnings on 12/31/2012
    Less Cumulative Effect to December 31, 2012 of the Assignment
    and Depreciation of the Difference between Implied and Book Value
    Assigned to:
    2010
    2011
    2012
    Inventory
    $32,000
    $0
    $0
    Equipment
    20,800
    20,800
    20,800
    $52,800
    $20,800
    $20,800
    Goodwill Impairment (2012)
    Controlling Retained Earnings on 12/31/2012

    $766,000

    (94,400)
    (38,000)
    $633,600

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