Question

The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 2015, when Seine had the following balance sheet: Assets Accounts receivable $ 50,000 Inventory 120,000 Land 80,000 Building 270,000 Equipment 80,000 Total $600,000 Liabilities and Equity Current liabilities $100,000 Common stock, $5 par 60,000 Paid-in capital in excess of par 140,000 Retained earnings (July 1) 300,000 Total $600,000 The inventory is understated by $20,000 and is sold in the third quarter of 2015. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill. From July 1 through June 30, 2016, Seine had net income of $100,000 and paid $10,000 in dividends. Assume that Paris uses the equity method to record its investment in Seine. Required: a. Prepare a determination and distribution of excess schedule as of July 1, 2015. b. Prepare the eliminations and adjustments that would be made on the June 30, 2016 consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess. Determination and distribution of excess schedule as of July 1, 2015: -------Do this in Excel------- Elimination and Adjusting Entries as of June 30, 2016: -------Do this in Excel--------

Answer 1

a) Determination and distribution of excess schedule as of July 1, 2015 at acquisition
	Company Implied FairValue	Parent Price	NCI Value
Fair value of subsidiary	$ 750,000.00	$ 600,000.00	$ 150,000.00
Less book value:
Common Stock	$   60,000.00
Additional paid in capital	$ 140,000.00
Retained Earnings	$ 300,000.00
Total shareholders' Equity	$ 500,000.00	$ 500,000.00	$ 500,000.00
Interest Acquired		80%	20%
Book value		$ 400,000.00	$ 100,000.00
Excess of fair over book	$ 250,000.00	$ 200,000.00	$   50,000.00
Adjust identifiable accounts:		Life	Amortization/ depreciation
Inventory	$   20,000.00	sold in third quarter
Building (320,000 - 70000)	$   50,000.00	10.00	$     5,000.00
Equipment (120000 - 80000)	$   40,000.00	5.00	$     8,000.00
Goodwill	$ 140,000.00
Total	$ 250,000.00
b)
Eliminations and adjustments for the June 30, 2016 consolidating worksheet
Account Titles and Explanation	Debit	Credit
CV
Investment in Subsidiary	N/A
Retained Earnings		N/A
CY2
Investment in Subsidiary  (10,000 x 80%)	$     8,000.00
Dividends Declared- Seine		$     8,000.00
EL
Common Stock = 60000 x 80%	$   48,000.00
Additional paid in capital = 140000 x 80%	$ 112,000.00
Retained Earnings = 300000 x 80%	$ 240,000.00
Investment in Subsidiary		$ 400,000.00
D
Cost of Goods Sold	$   20,000.00
Building (320,000 - 70000)	$   50,000.00
Equipment (120000 - 80000)	$   40,000.00
Goodwill	$ 140,000.00
Investment in Subsidiary		$ 200,000.00
Retained Earnings (NCI)		$   50,000.00
A
Depreciation Expenses	$     5,000.00
Accumulated Depreciation - Building		$     5,000.00
Depreciation Expenses	$     8,000.00
Accumulated Depreciation - Equipment		$     8,000.00