Question

In: Accounting

On January 1, 2019, P Co. acquired 80 percent of S Co. for $400,000 cash. S...

  1. On January 1, 2019, P Co. acquired 80 percent of S Co. for $400,000 cash. S reported net income of $20,000 and dividends of $3,000 for 2019. On the date of acquisition, S reported common stock outstanding of $350,000 and retained earnings of $50,000. It held land with a book value of $180,000 and a market value of $200,000, and equipment with a book value of $80,000 and a market value of $98,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of ten years. All depreciable assets held by S at the date of acquisition had a remaining economic life of eight years. P uses the equity method in accounting for its investment in S.

     Required:

  1. Provide the journal entries recorded by P during 2019 on its books if it accounts for its investment in S.
  2. Provide all consolidation entries needed at December 31, 2019, to prepare consolidated financial statements.

Solutions

Expert Solution

Requirement 1

Book Value of Net Asset (350,000 + 50,000) $400,000
Add: Excess of Fair Value over book value

Land

$20,000

Equipment

$18,000
Total $438,000

P Company's share = $438,000 * 80% = $350,400

Amount paid by P to acquire 80% of S = $400,000

Therefore amount attributable to Patents out of P's share =  $400,000 - $350,400 = $49,600

Therefore total value of Patent = $49600 / 80% = 62,000

Journal Entry in the books of P

Date Accounts Debit Credit
January 1, 2019 Investment $400,000
Cash $400,000
(to record purchase of S for cash)
December 31, 2019 Investment $16000
Equity in earning (I/S) $16000
(to record subsidiary income)
December 31, 2019 Cash $2,400
Investment $2,400
(to record the receipt of dividend)
December 31, 2019 Equity in Earnings (I/S) $1,800
Investment $1,800
( Depreciation of excess FV of equipment)
December 31, 2019 Equity in Earnings (I/S) $4,960
Investment $4,960
( Amortization of Patent)

Requirement 2

Consolidation entries

Date Accounts Debit Credit
December 31, 2019 Common Stock - Sub 350,000
Retained Earning - Sub 67,000
Excess FV over BV 35,750
Patent 55,800
Investment in Sub 406840
Non Controlling Interest 101,710

For any clarification kindly comment. Please Up Vote


Related Solutions

Question 8 On January 1, 2019, P Co. acquired 80 percent of S Co. for $400,000...
Question 8 On January 1, 2019, P Co. acquired 80 percent of S Co. for $400,000 cash. S reported net income of $20,000 and dividends of $3,000 for 2019. On the date of acquisition, S reported common stock outstanding of $350,000 and retained earnings of $50,000. It held land with a book value of $180,000 and a market value of $200,000, and equipment with a book value of $80,000 and a market value of $98,000 at the date of combination....
Problem I. On January 1, 2019, P Corp acquired 80% of the outstanding common stock of...
Problem I. On January 1, 2019, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000 cash. On that date, S Company’s stockholders’ equity consisted of common stock, $150,000; other contributed capital, $200,000; and retained earnings, $350,000. P Corp paid more than the book value of net assets acquired because the recorded cost of S Corp’s equipment (5 year remaining useful life) was $40,000 less than its fair value; the remainder was allocated to goodwill. There...
On January 1, 2018, Co. P acquired 90% of Co. S for $550,000, plus $15,000 in...
On January 1, 2018, Co. P acquired 90% of Co. S for $550,000, plus $15,000 in acquisition costs. On the date of acquisition, Co. S had the following balance sheet: Assets Liabilities & Equity Accounts Receivable 150,000 Current Liabilities 260,000 Inventory 180,000 Bonds Payable 250,000 Land 200,000 Common Stock, $1 Par 400,000 Buildings 550,000 PIC In Excess of Par 70,000 Acc. Deprecition (Bldg) (100,000) Retained Earnings 300,000 Equipment 400,000 Acc. Depreciation (Equip) (120,000) Goodwill 20,000 Total Assets 1,280,000 Total Liab....
Pitino acquired 80 percent of Brey's outstanding shares on January 1, 2019, in exchange for $369,000...
Pitino acquired 80 percent of Brey's outstanding shares on January 1, 2019, in exchange for $369,000 in cash. The subsidiary's stockholders' equity accounts totaled $353,000, and the noncontrolling interest had a fair value of $92,250 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $19,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life). Brey reported net income from its own...
On January 1, 2012, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000. On January 1, 2018, P Corp sold $120,000 of land to S Corp for cash.
  On January 1, 2012, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000. On January 1, 2018, P Corp sold $120,000 of land to S Corp for cash. The cost of the land was $50,000 at the date of the transfer. Also on January 1, 2018, P Corp transferred equipment to S Corp for $20,000 cash. The equipment originally cost $26,000 and has a book value of $15,000 (three-year remaining useful life). During 2019,...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $888,000. The fair value of the noncontrolling interest at the acquisition date was $222,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 300,000 Additional paid-in capital 70,000 Retained earnings 630,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $90,000. Any remaining...
On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $482,000....
On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $482,000. Birch reported a $542,500 book value, and the fair value of the noncontrolling interest was $120,500 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $144,000 when Cedar had a $150,000 book value and the 20 percent noncontrolling interest was valued at $36,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $776,000. The fair value of the noncontrolling interest at the acquisition date was $194,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 200,000 Additional paid-in capital 70,000 Retained earnings 490,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining...
On July 1, 2016, S&S Inc. acquired 80% of Wade Co. by paying $596,000 cash. Wade...
On July 1, 2016, S&S Inc. acquired 80% of Wade Co. by paying $596,000 cash. Wade Co. reported a Common Stock account balance of $160,000 and Retained Earnings of $360,000 at that date. S&S Inc.’s purchase was the best basis for determining the fair value of Wade Co. The total annual amortization as a result of this transaction was determined to be $12,000. Wade Co. realized net income of $104,000 evenly for the year in 2016 and made an annual...
Assume that, on January 1, 2019, P Company acquired a 70% interest in its subsidiary, S...
Assume that, on January 1, 2019, P Company acquired a 70% interest in its subsidiary, S Company. The aggregate fair value of the controlling and noncontrolling interest was $400,000 in excess of S Company’s Stockholders’ Equity on the acquisition date. The parent uses the equity method to account for its investment in S company. The parent assigned the acquisition accounting premium (AAP) as follows: AAP Item Initial Fair Value Useful Life (years) PPE, net $220,000 10 Customer List 120,000 10...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT