Question

Pepitone Company acquires an 80% interest in Spahn Company for $400,000 cash on January 1, 2018. On that date, Spahn’s equipment (remaining economic life of 5 years) is undervalued by $50,000; any remaining excess of cost over book value is attributed to goodwill. Spahn’s balance sheet on the date of the purchase is as follows:

Assets		Liabilities and Equity
Cash	$ 60,000	Current liabilities	$ 60,000
Inventory	60,000	Long-term liabilities	80,000
Property, plant and equip.	600,000	Common Stock (no par)	300,000
Accumulated depreciation	(180,000)	Retained Earnings	100,000
Total assets	$540,000	Total Liabilities & Equity	$540,000

The controlling interest in consolidated net income for 2018 is $195,800; the noncontrolling interest is $12,000. On December 31, 2018, Pepitone acquired a 15% interest in Adams, Inc. and, in an unrelated transaction, issued additional common stock. Dividends declared and paid during the year by Pepitone and Spahn were $60,000 and $30,000, respectively. There are no purchases or sales of property, plant, or equipment during the year.

	Pepitone    1/1/18	Consolidated 12/31/18
Cash	200,000	174,200
Inventory	100,000	168,600
Property, plant and equipment Accumulated depreciation	2,000,000 (800,000)	2,650,000 (1,106,000)
Investment in Adams		115,000
Goodwill		50,000
Current Liabilities	(160,000)	(230,000)
Long-term Liabilities	(200,000)	(260,000)
NCI		(106,000)
Common Stock ($10 par)	(200,000)	(240,000)
Paid-In Capital in Excess of Par Retained Earnings	(600,000) (340,000) -0-	(740,000) (475,800) -0-

Prepare the following:

1. A Value Analysis and a D&D schedule.   

2. A consolidated statement of cash flows and the noncash schedule of investing activity for the year ended December 31, 2018, for Pepitone and its subsidiary. Prepare the formal Statement of Cash Flows for Pepitone on the next page. Prepare the noncash schedule of investing activity on a separate page following the Statement of Cash Flows.  

3. A T-account worksheet

Answer 1

From the Given data:

cash flows operating activites		Total
consolidated net income (198500+12000) adjustment to reconcile net income to net cash) Depreciation expense(1200000+420000+50000-1544000) Inventory increases{16800-(100000+60000)} current liabilities increase(230000-(160000+60000)) Total Adjustments net cash provided by operating activities are	126000 -8600 10000	20780 127400 335200

Cash flows from investing activities
Purchase of intrest in spahn net of cash acquired(400000-60000) investment in adams net cash used by investing	-340000 -115000	-455000
cash flows used by investing activities
issue common stock [240000-200000+740000-600000] payment of long term(260000-(200000+80000))	180000 -20000
By spahn to non controlling intrest(30000*20%)	-60000 -6000

net cash provided by finacing activities net decrease in cash cash at begining of year cash at year end

94000 -25800 200000 174200

NO CASH TRANSACTION DISCLOUSER:

Acquired 80% of comman stock of spahn for 400000 cash in conjucstion with acquision liabilities were assumed

adjusted value os assets acquired excess cash paid for common stock liabilities non controlling intrest(640000-400000-140000)

540000 100000

640000 400000 140000

VALUE ANALYSIS:

	IMPLIED FAIR VALUE	parent price 80%	nci
company fair value fair value of net asset exclueding good will GOOD WILL	500000 450000' 50000	400000 360000 40000	100000 90000 10000

D&D shedule:

	implied fair value	parent price 80%	NCI
fair value of subsidiary less:book value of intrest common stock retained earnings total equity intrest acquired book valuevalue of fair value over book value	500000 300000 100000 400000	400000 400000 80% 320000 80000	100000 400000 20% 80000 20000