Question

On January 1, 2016, Aronsen Company acquired 80 percent of Siedel Company’s outstanding shares. Siedel had a net book value on that date of $630,000: common stock ($14 par value) of $280,000 and retained earnings of $350,000.

Aronsen paid $640,000 for this investment. The acquisition-date fair value of the 20 percent noncontrolling interest was $160,000. The excess fair value over book value associated with the acquisition was used to increase land by $110,000 and to recognize copyrights (12-year remaining life) at $60,000. Subsequent to the acquisition, Aronsen applied the initial value method to its investment account.

In the 2016–2017 period, the subsidiary’s retained earnings increased by $180,000. During 2018, Siedel earned income of $88,000 while declaring $28,000 in dividends. Also, at the beginning of 2018, Siedel issued 5,000 new shares of common stock for $55 per share to finance the expansion of its corporate facilities. Aronsen purchased none of these additional shares and therefore recorded no entry.

Prepare the appropriate 2018 consolidation entries for these two companies.

PLEASE SHOW ALL WORKS AND STEPS HOW TO GET THE JOURNAL ENTRY NUMBERS. THANK YOU

Answer 1

Entry	Description	Debit	Credit
Entry *C	Investment in Siedel	172000
	Retained Earnings, 1/1/18 (Aronsen)		172000
	(To convert 1/1/14 balance to full accrual [$180,000 less two year’s amortization expense $5,000 × 2] × 80%)
Entry C1	Investment in Siedel	4160
	Additional Paid-In Capital (Aronsen)		4160
	(To record adjustment for subsidiary stock transaction)
Entry S	Common Stock (Siedel) (5000*14)	70000
	Additional Paid-In Capital (Siedel) (5000*41)	205000
	Retained Earnings, 1/1/18 (Siedel)(350000+180000)	530000
	Investment in Siedel (805000*75%)		603750
	Noncontrolling Interest in Siedel, 1/1/18 (805000*25%)		201250
	(To eliminate subsidiary stockholders' equity accounts against Investment account and to recognize noncontrolling interest. Stockholders’ equity balances have been adjusted for increase in book value during 2016–2017 and the issuance by the subsidiary of 5,000 shares of stock on 1/1/18.)
Entry A	Land	110000
	Copyrights (60000-(5000*2))	50000
	Investment in Siedel (75%)		120000
	Noncontrolling Interest (25%)		40000
	(To recognize acquisition price allocated to land and copyrights. Copyrights balance has been reduced for 2016–2017 amortization to arrive at 1/1/18 balance. NCI now reflects 25% of the unamortized 1/1/14 balance)
Entry I	Dividend income	21000
	Dividends paid		21000
	To eliminate intra-entity dividends record by parents as income (28000*75%)
Entry E	Amortization Expenses	5000
	Copyrights		5000
	(To recognize current year amortization)

Fair value (consideration transferred plus NCI fair value) (640,000+160,0000).......................................................$800,000

Acquisition-date book value............................................................(630,000)

Fair value in excess of book value .................................................$170,000

Allocated to land based on fair value.............................................110,000

Allocated to copyrights based on fair value..................................$ 60,000

Life of copyrights .............................................................................12 yrs

Annual amortization .........................................................................$ 5,000

Adjustment for Stock Transaction

Adjusted acquisition-date fair value of subsidiary on new issue date ($800,000 + ($180,000*80%) + (5000*$55)) ..................................................................................$1219000

Adjusted parent ownership (16,000 shares ÷ 25,000 shares) ….......................................64%

Parent’s post-issue equity method value at 1/1/18 ....................................................$780160

Equity method balance before new subsidiary stock issue Consideration transferred..............................................................640,000

Increase in book value (80% × $180,000)..................144,000

Copyright amortization ($5,000 × 2 years × 80%)......(8,000)………………………..776000

Required increase (Entry C1) ........................................................................................$ 4160