Question

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $95,900. At that date, the fair value of the noncontrolling interest was $41,100. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

	Phone					Smart
Item	Corporation					Corporation
Cash		$	68,300				$	37,000
Accounts Receivable			96,000					57,000
Inventory			142,000					87,000
Land			77,000					31,000
Buildings & Equipment			421,000					257,000
Less: Accumulated Depreciation			(153,000	)				(76,000	)
Investment in Smart Corporation			95,900
Total Assets		$	747,200				$	393,000
Accounts Payable		$	139,500				$	26,000
Mortgage Payable			344,700					251,000
Common Stock			72,000					37,000
Retained Earnings			191,000					79,000
Total Liabilities & Stockholders’ Equity		$	747,200				$	393,000

At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of $93,000, and buildings and equipment, which had a fair value of $196,000. At December 31, 20X4, Phone reported accounts payable of $12,500 to Smart, which reported an equal amount in its accounts receivable.

Required:
a. Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) A- Record the basic consolidation entry. B- Record the excess value (differential) reclassification entry. C- Record the entry to eliminate the intercompany accounts. D- Record the optional accumulated depreciation consolidation entry.
  

b. Prepare a consolidated balance sheet worksheet. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
  

c. Prepare a consolidated balance sheet in good form. (Amounts to be deducted should be indicated with a minus sign.)
  

Answer 1

Answer :

1)Date of control/acquisition 31-12-20x4

2)percentage of control 70%

3)Analysis of profit  

particulars pre

a)Retained earnings $79000

b)Adjustments:

i)increase in fair market value of inventory $6000

($93000 fair value-$87000 book value)

ii)increase in valuation of buildings and equipment $15000 $21000

($196000 fair value-$181000(257000-76000)

after considering depreciation)

Net total $100000

share of phone corporation 70% $70000

minority interest 30% $30000

4)cost of control

particulars amount

a)cost of investment    $95900

b)share in assets of smart corporation

(70% in common stock ($37000*70%) $25900

(share in pre profits (95900-25900)) $70000 $95900

c)goodwill -

5) minority interest

a)share in common stock ($37000*30%) $11100

b)share in pre profits $30000

total $41100

part a)consolidation entries in the consolidated balance sheet of phone corporation as on 31 december 20x4

  

cash A/C Dr	$37000
Accounts receivable A/c Dr	$57000
inventory A/c Dr	$93000
land A/c Dr	$31000
Building & equipment Dr	$196000
To accounts payable A/c		$26000
To mortgage payable A/c		$251000
To investment in down corporation stock A/c		$95900
To Minority interest A/c		$41100
[Being consolidated entry passed]

part b) Preparation of consolidated work sheet

In this , we need to calculate the amount of line of items to prepare consolidated balance sheet

items	phone corporation	smart corporation	elimination	Total
cash	$68300	$37000	-	$105300
accounts receivables	$96000	$57000	$12500	$140500
Inventory	$142000	$93000	-	$235000
Land	$77000	$31000	-	$108000
Building & equipment (421000-153000)	$268000	$196000	-	$464000
Accounts payable	$139500	$26000	$12500	$153000
Mortgage payable	$344700	$251000	-	$595700
Common stock	$72000	-	-	$72000
Retained earnings	$191000	-	-	$191000
Minority share	$41100	-	-	$41100

part c)preparation of consolidated balance sheet of phone corporation as on 31 december 20x4

consolidated balance sheet of phone corporation as on 31 december 20x4

  

particulars
cash	$105300
accounts receivable	$140500
inventory	$235000
land	$108000
building & equipment	$464000
Total assets	$1052800
Accounts payable	$153000
Mortgage payable	$595700
Common stock	$72000
Retained earnings	$191000
Minority share	$41100
Total liabilities	$1052800