Question

On January 1, 2013 Schaepman company acquired 100% of Bruinisse company by issuing 10,000 shares of its € 10 par value voting stock (having a fair value of € 13 per share). At that date Bruinisse had a stockholders’ equity of € 105,000. Land shown on Bruinisse’s accounting records was undervalued by € 10,000. Equipment with a 5-year remaining life was undervalued by € 5,000. A secret formula developed by Bruinisse was appraised at € 20,000 with an estimated life of 20 years. Furthermore, from the point of view of Schaepman, a deferred liability that was not on the accounting records of Bruinisse was estimated to have a fair value of € 10,000., By the end of 2013 this deferred liability did no longer exist.

Following are the separate financial statements for the two companies for the year ending December 31, 2017. On that date Bruinisse had an account payable to Schaepman of € 3,000.

	Schaepman	Bruinisse
Current assets	268,000	75,000
Investment in Bruinisse	216,000	-
Land	427,500	58,000
Buildings and equipment	713,000	161,000
Current liabilities	-110,000	-19,000
Long-term liabilities	-80,000	-84,000
Common stock	-600,000	-60,000
Additional paid-in capital	-90,000	-5,000
Retained earnings, December 31, 2017	-744,500	-126,000
	0	0
Retained earnings, January 1, 2017	-659,000	-98,000
Net income	-261,000	-68,000
Dividend declared and paid	175,500	40,000
Retained earnings, December 31, 2017	-744,500	-126,000
Revenues	-485,000	-190,000
Costs of goods sold	160,000	70,000
Depreciation expense	130,000	52,000
Subsidiary earnings	-66,000
Net income	-261,000	-68,000

Question 1

Explain how Schaepman derived the € 66,000 balance in the Subsidiary earnings account.

Question 2

Prepare a worksheet to consolidate the financial information for these two companies.

Answer 1

ans 1. as the business is acquired hence profit of Bruinisse is to be added in the profit of Schaepman. and it is accured due to increase and decrease in valuations of the assets and liability l.e undervaluation of land,equipment and non recording of formula and balance because of invenstment in the business.

ans 2.

Schaepman
Profit and Loss Account
As on 31.12.2017
Particulars	Amount	Particulars	Amount
To Cost of Goods Sold	230000.00	By Sales	675000.00
To Gross profit	445000.00
	675000.00		675000.00
To Depreciation	182000.00	By Gross Profit	445000.00
		By Dividend Income
To Net Profit	263000.00
	445000.00		445000.00
To Dividend	215500.00	To Net Profit	263000.00
To Retained earnings	47500.00
Balance Sheet
As on 31.12.2017
Liability	Amount	Assets	Amount
Common Stock	600000.00	Current assets	343000.00
Additional paid-in capital	90000.00	Intangible assets	20000.00
Retained Earnings	744500	Buildings and equipment	879000.00
Long-term liabilities	164000	Land	495500.00
Current liabilities	129000
Security premium	10000
	1737500.00		1737500.00