Question

The Paris Company purchased an 80% interest in Seine, Inc. for $600,000 on July 1, 2015, when Seine had the following balance sheet:

Assets
Accounts receivable	$ 50,000
Inventory	120,000
Land	80,000
Building	270,000
Equipment	80,000
Total	$600,000
Liabilities and Equity
Current liabilities	$100,000
Common stock, $5 par	60,000
Paid-in capital in excess of par	140,000
Retained earnings (July 1)	300,000
Total	$600,000

The inventory is understated by $20,000 and is sold in the third quarter of 2015. The building has a fair value of $320,000 and a 10-year remaining life. The equipment has a fair value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to goodwill.

From July 1 through June 30, 2016, Seine had net income of $100,000 and paid $10,000 in dividends.

Assume that Paris uses the equity method to record its investment in Seine.

Required:

a.	Prepare a determination and distribution of excess schedule as of July 1, 2015.
b.	Prepare the eliminations and adjustments that would be made on the June 30, 2016 consolidated worksheet to eliminate the investment in Seine. Distribute and amortize any excess. Determination and distribution of excess schedule as of July 1, 2015: -------Do this in Excel------- Elimination and Adjusting Entries as of June 30, 2016: -------Do this in Excel--------

On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for $600,000. On this date Seaman had total owners' equity of $400,000. Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years.

During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method.

On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 20X2. Seaman's gross profit on all sales is 40%.

On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December.

Required:

Complete the worksheet similar to Figure 4-1 (following) for consolidated financial statements for the year ended December 31, 20X2. Prepare your worksheet in Excel. Following is a template in Figure 4-1 that will guide you in setting up your worksheet in Excel.

Answer 1

q1) a)

	Company Implied Fair Value	parent price	NCI Value
Fair Vlaue of subsidiary	750,000	600,000	150,000
Less:Book Value
common stock	60,000
Paid in capital in excess of par	140,000
retained earnings	300,000
Total Equity	500,000	500,000	500,000
Interest Acquired		80%	20%
Book Value		400,000	100,000
excess of fair over book	250,000	200,000	50,000
ADJUST IDENTIFIABLE ACCOUNTS:		life	amort/year
Inventory	20,000(sold in 3rd quarter)
Building	50,000	10	5,000
equipment	40,000	5	8,000
goodwill(balancing figure)	140,000
total	250,000

b)Eliminating entries:

	PARTICULARS	DEBIT	CREDIT
CV	INVESTMENT IN SUBSIDIARY	N/a
	R/E-Par		N/a
	(conversion from cost to simple equity not required at end of first year)
CY2	INVESTMENT IN SUBSIDIARY(10,0000 X 80%)	8,000
	DIVIDENDS DECLARED-SUB		8,000
EL	COMMON STOCK-SUB(60,000 X 80%)	48,000
	PAID IN CAPITAL IN EXCESS OF PAR-SUB(140,000 X 80%)	112,000
	RETAINED EARNINGS-SUB (300,000 X 80%)	240,000
	INVESTMENT IN SUB		400,000
D	COST OF GOODS SOLD(FOR INVENTORY)	20,000
	BUILDING	50,000
	EQUIPMENT	40,000
	GOODWILL	1,40,000
	INVESTMEN IN SUB(80%)		200,000
	RETAINED EARNINGS-SUB(NCI)(20%)		50,000
A	DEPRICIATION EXPENSE(5000 X 6/12)	2,500
	ACCUMULATED DEP-BUILDING		2,500
	DEPRICIATION EXPENSE(8000 X 6/12)	4,000
	ACCUMULATED DEP-EQUIPMENT		4,000

Q2)PRANGE COMPANY

ACCOUNT TITLES	TRIAL BALANCE		ELIMINATIONS AND ADJUSTMENTD
	PRANGE COMPANY	SEAMEN COMPANY	DEBIT	CREDIT
INVENTORY,DECEMBER 31	100,000	105,000		(EI)8,000
OTHER CURRENT ASSETS	207,000	325,000		(IA)20,000
INVESTMENT IN SUB. COMPANY	710,000			(CY)60,000
				(EL)450,000
				(D)200,000
LAND	1,40,000	80,000
BUILDINGS AND EQUIPMENT	315,000	340,000
ACCUMULATED DEPRICIATION	(220,000)	(130,000)
PATENT	20,000		(D)20,000	(A) 40,000
CURRENT LIABILITIES	(1,50,000)	(70,000)	(IA)20,000
BONDS PAYABLE		(100,000)
OTHER LONG TERM LIABILITIES	(200,000)	(40,000)
COMMON STOCK-P CO.	(200,000)
OTHER PAID IN CAPITAL-P CO.	(100,000)
RETAINED EARNINGS-P CO.	(492,000)		(A)20,000
			(BI)12,000
COMMON STOCK-S CO.		(150,000)	(EL)150,000
OTHER PAID IN CAPITAL-S CO.		(100,000)	(EL)100,000
RETAINED EARNINGS-S CO.		(200,000)	(EL)200,000
NET SALES	(600,000)	(380,000)	(IS)100,000
COST OF GOOD SOLD	360,000	228,000	(EI)8,000	(BI)12,000
				(IS)100,000
OPERATING EXPENSES	140,000	62,000	(A)20,000
SUBSIDIARY INCOME	(90,000)		(CY)90,000
DIVIDENDS DECLARED-P CO.	60,000
DIVIDENDS DECLARED-S CO.		30,000		(CY)30,000
CONSOLIDATED NET INCOME
NCI
CONTROLLING INTEREST
TOTAL NCI
RET.EARN.CONT.INT
	0	0	920,000	920,000

ACCOUNT TITLES	CONSOLIDATED INCOME STATEMENT	NCI	CONTROL. REATINED EARNINGS	CONSOLIDATED BALANCE SHEET
INVENTORY DEC,31				197,000
OTHER CURRENT ASSETS				512,000
INVESTMENT IN SUB. CO.				0
LAND				220,000
BUILDINGS AND EQUIPMENT				655,000
ACCUMULATED DEPRICIATION				(350,000)
PATENT				180,000
CURRENT LIABILITIES				(200,000)
BONDS PAYABLE				(100,000)
OTHER LONG TERM LIABILITIES				(240,000)
COMMON STOCK-P CO.				(200,000)
OTHER PAID IN CAPITAL-P CO.				(100,000)
RETAINED EARNINGS-P CO.			(460,000)
COMMON STOCK-S CO.
OTHER PAID IN CAPITAL-S CO.
RETAINED EARNINGS-S CO.
NET SALES	(880,000)
COST OF GOODS SOLD	484,000
OPERATING EXPENSES	222,000
SUBSIDIARY INCOME	0
DIVIDENDS DECLARED-P CO.			60,000
DIVIDENDS DECLARED-S CO.
CONSOLIDATED NET INCOME	(174,000)
NCI	0
CONTROLLING INTEREST	174,000		(174,000)
TOTAL NCI				0
RET. EARN. CONTR. INT.			574,000	(574,000)
				0

Eliminations and Adjustments:
(CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account.
(EL) Eliminate the Seaman Company equity balances at the beginning of the year against the investment account.
(D) Distribute the $200,000 excess of cost over book value to patent.
(A) Amortize the patent over 10 years, with $20,000 for 20X1 charged to retained earnings, and $20,000 for 20X2 to operating expenses.
(BI) Eliminate the $12,000 of gross profit in the beginning inventory.
(IS) Eliminate the entire intercompany sales of $100,000.
(EI) Eliminate the $8,000 of gross profit in the ending inventory.
(IA) Eliminate the $20,000 intercompany accounts receivable and payable.
DIF:M OBJ:4-2 MSC: 100%; simple equity