In: Accounting
The individual financial statements for Union Company and Essex Company for the year ending December 31, 2018, follow. Union acquired a 60 percent interest in Essex on January 1, 2017, in exchange for various considerations totaling $510,000. At the acquisition date, the fair value of the noncontrolling interest was $340,000 and Essex’s book value was $670,000. Essex had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $180,000. This intangible asset is being amortized over 20 years. Union sold Essex land with a book value of $85,000 on January 2, 2017, for $170,000. Essex still holds this land at the end of the current year. Essex regularly transfers inventory to Union. In 2017, it shipped inventory costing $149,500 to Union at a price of $230,000. During 2018, intra-entity shipments totaled $280,000, although the original cost to Essex was only $168,000. In each of these years, 20 percent of the merchandise was not resold to outside parties until the period following the transfer. Union owes Essex $45,000 at the end of 2018. Union Company Essex Company 12/31/2018 12/31/2018 Sales $ -880,000 $ -580,000 Cost of goods sold 580,000 380,000 Operating expenses 180,000 65,000 Equity in earnings of Essex -81,000 0 Net income $ -201,000 $ -135,000 Retained earnings, 1/1/18 $ -1,196,000 $ -660,000 Net income (above) -201,000 -135,000 Dividends declared 110,000 65,000 Retained earnings, 12/31/18 $ -1,287,000 $ -730,000 Cash $ 177,000 $ 90,000 Accounts receivable 372,000 490,000 Inventory 470,000 400,000 Investment in Essex 834,000 0 Land 190,000 470,000 Buildings and equipment (net) 504,000 380,000 Total assets $ 2,547,000 $ 1,830,000 Liabilities $ -590,000 $ -620,000 Common stock -670,000 -400,000 Additional paid-in capital 0 -80,000 Retained earnings, 12/31/18 -1,287,000 -730,000 Total liabilities and equities $ -2,547,000 $ -1,830,000 (Note: Negative number indicate a credit balance.)
a. Prepare a worksheet to consolidate the separate 2018 financial statements for Fairleigh andDickinson.
b. Prepare US GAAP compliant Balance Sheet and Income Statement as of December 31, 2018, and for the year then ended.
c. How would the consolidation entries in requirement (a) have differed if Union had sold a building with a $100,000 book value (cost of $220,000) to Essex for $180,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. Prepare journal entries; do not make a new worksheet or FS.
ANSWER:-
Goodwill 834,000 minus 510,000 = 324,000
Book value of minority interest 670,000 minus fair value 340,000 = 330,000 to be impaired from retained earnings
Customer acquisitions to be shown as intangible assets for 180,000 minus amortization 9,000 = 171,000
Book profit in sale of land 85,000 in P&L
2017 sale of goods to Union to be adjusted in the Open Retained earnings for Essex Sales 230000 - COGS 149500 = 80500 to be reduced
Union owe to Essex 45,000 to be reduced from AR and AP
2018 sale of goods to Union, inventory to be reduced by profit on sale of goods not sold 22,400
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