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Follow-Up Problem Subsequent

Ford Corporation acquired 80% of Slim Corporation for $470,000. The non-controlling interest was valued at $117,500. An analysis of Slim's assets and liabilities found some book values differed from fair values. Specifically, inventory was $20,000 higher, land was $10,000 lower, and buildings/equipment was $70,000 higher at fair value. Goodwill of $57,500 was calculated and allocated between Ford and the non-controlling interest. The adjustments were made in the consolidated working papers and financial statements.

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Follow-Up Problem Subsequent

Ford Corporation acquired 80% of Slim Corporation for $470,000. The non-controlling interest was valued at $117,500. An analysis of Slim's assets and liabilities found some book values differed from fair values. Specifically, inventory was $20,000 higher, land was $10,000 lower, and buildings/equipment was $70,000 higher at fair value. Goodwill of $57,500 was calculated and allocated between Ford and the non-controlling interest. The adjustments were made in the consolidated working papers and financial statements.

Uploaded by

asdasda
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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Partially (80%) Owned Subsidiary: Computation of Consolidated Balances

Slim Corporation’s Statement of Financial Position at January 1, 20x4, reflected the


following balances:

Cash and Receivables . . . . . . . . . . P 80,000 Accounts Payable . . . . . . . . . . . . . . . . . . . . P 40,000


Inventory . . . . . . . . . . . . . . . . . . . . . . 120,000 Income Taxes Payable . . . . . . . . . . . . . . . . 60,000
Land . . . . . . . . . . . . . . . . . . . . . . . . 70,000 Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Buildings and Equipment (net) . . 480,000 Common Stock . . . . . . . . . . . . . . . . . . . . . . 250,000
________ Retained Earnings . . . . . . . . . . . . . . . . . . . . 200,000
Total Assets . . . . . . . . . . . . . . . . . . P750,000 Total Liabilities and Stockholders' Equity P750,000

Ford Corporation entered into an acquisition program and acquired 80 percent of Slim’s common
stock on January 2, 20x4, for P470,000. The non-controlling interest is measured at fair value.
The fair value of the non-controlling interest at the date was determined to be at P117,500. A
careful review of the fair value of AA’s assets and liabilities indicated the following:

  Book Value Fair Value


Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P120,000 P140,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 60,000
Buildings and equipment (net) . . . . . . . . . . . . . . . . . . . . 480,000 550,000

Goodwill is assigned proportionately to Ford and the non-controlling stockholders.

Required: Compute the appropriate amount to be included in the consolidated Statement of


Financial Position immediately following the acquisition for each of the following items:

1. Inventory
2. Land
3. Buildings and Equipment (net)
4. Goodwill
5. Investment in Slim Corporation
6. Total assets of the Acquired Company
7. Total liabilities of the Acquired Company
8. Non-controlling interest

Entry in the Books of Acquirer:


Investment in Slim 470,000
Cash 470,000

Working Paper Entries:

a. To eliminate the SHE of the acquired company:

Common Stock 250,000


Retained Earnings 200,000
Investment in Slim 360,000
NCI 90,000

b. To recognize FV differentials

Inventory 20,000
Building and Equipment 70,000
Land 10,000
Investment in Slim 64,000
NCI 16,000

c. To recognize the resulting goodwill

Goodwill 57,500
Investment in Slim 46,000
NCI 11,500

Answers:
1 Inventory (P120,000 + P20,000) P140,000 
2 Land (P70,000 – P10,000) P 60,000 
3 Buildings and Equipment (P480,000 + P70,000) 550,000 

4. Goodwill, P57,500

Fair value of Subsidiary:


Consideration transferred P470,000
Add: FV of Non-Controlling Interest 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Allocated excess P137,500
Less: Over/under valuation of Assets and Liab: Inc. (Dec.)
Inventory P 20,000 
Land (10,000)
Buildings and equipment (net) 70,000  80,000
Goodwill P 57,500 

or,

Fair value of consideration given by Ford P470,000 


Fair value of noncontrolling interest 117,500 
Aggregate Amount P587,500 

Book value of Slim’s net assets P450,000


Fair value increment for:
Inventory 20,000
Land (10,000)
Buildings and equipment (net)   70,000
Fair value of identifiable net assets (530,000)
Goodwill P  57,500 

5 Investment in Slim Corporation: None would be reported;


the balance in the investment account is eliminated in the working
paper

6.
Total assets:
Unadjusted total assets (per books) P750,000
Add (deduct): Working Paper adjustments
Increase in inventory 20,000
Decrease in land ( 10,000)
Increase in buildings and equipment 70,000
Adjusted assets (for consolidation purposes) P830,000

7. P300,000 (no WP adjustments)

8 Noncontrolling Interest (P587,500 x .20) P117,500 


or,
BV – SHE of Slim P450,000
Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000
FV of SHE of Slim P530,000
Goodwill 57,500 NA as
adjusted for consolidation purposes P587,500
x 20%
P117,500

-end of problems-

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