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10.Balance sheet and income statement data for two affiliated companies for the current year appear below:...

10.Balance sheet and income statement data for two affiliated companies for the current year appear below:

BALANCE SHEET
As at December 31, Year 6
Albeniz Bach
Cash $ 40,000 $ 21,000
Receivables 92,000 84,000
Inventories 56,000 45,000
Land 20,000 60,000
Plant and equipment 200,000 700,000
Accumulated depreciation (80,000 ) (350,000 )
Investment in Bach Company (cost) 272,000
Advances to Bach Company 100,000
Total assets $ 700,000 $ 560,000
Accounts payable $ 130,000 $ 96,500
Advances payable 100,000
Common shares 400,000 200,000
Retained earnings 170,000 163,500
Total liabilities and shareholders' equity $ 700,000 $ 560,000
INCOME STATEMENT
For the year ended December 31, Year 6
Albeniz Bach
Sales revenues $ 600,000 $ 400,000
Interest income 6,700
Dividend income from Bach 6,400
Total revenues $ 613,100 $ 400,000
Cost of goods sold 334,000 225,000
Distribution expense 20,000 70,000
Selling and administrative expense 207,000 74,000
Financing expense 1,700 6,000
Income taxes expense 20,700 7,500
Total expenses $ (583,400) $ (382,500)
Net income $ 29,700 $ 17,500

Additional Information

• Albeniz acquired an 80% interest in Bach on January 1, Year 3, for $272,000. On that date, the following information was noted about specific net assets of Bach:

Carrying Amount Fair Value
Inventory $ 20,000 $ 50,000
Land 25,000 45,000
Equipment (estimated useful life 15 years) 60,000 78,000
Misc. intangibles (estimated useful life 20 years) 42,000

Amortization expense is grouped with distribution expenses. Bach’s accumulated depreciation was $240,000 at the date of acquisition.

  • On January 1, Year 3, Bach had a retained earnings balance of $30,000.
  • Albeniz carries its investment at cost.

Required:

Prepare the following:

(a) Consolidated income statement (Input all values as positive numbers.)

(b) Consolidated balance sheet (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)

Solutions

Expert Solution

Solution.

Cost of 80% investment                                                                                            272,000

Implied value of 100% investment                                                                            340,000

Carrying amount of Bach’s net assets = Carrying amount of Bach’s shareholders’ equity

Common shares                                                                            200,000

Retained earnings                                                                         30,000

                                                                                                                             230,000

Acquisition differential                                                                                              110,000

Allocated:                                           FV – CA

Inventory                                  (50,000 – 20,000)                         30,000

Land                                         (45,000 – 25,000)                         20,000

Equipment                                (78,000 – 60,000)                        18,000                       

      Misc. intangibles                                (42,000 – 0)                         42,000           110,000            Goodwill                                                                                          0

Non-controlling interest (20% x 340,000)                                                                   68,000   (a)

                                      Acquisition Differential Amortization Schedule

                                   Balance                           Amortization                     Balance

                                     Jan. 1                   Dec. 31                  Dec. 31            Dec. 31

                                    Year 1          Years 1, 2, and 3          Year 4             Year 4

Inventory                     30,000                   30,000

Land                             20,000                                                                         20,000

Equipment                    18,000                     3,600                     1,200             13,200

Misc. intangibles          42,000                    6,300                     2,100             33,600

                             110,000                   39,900                     3,300             66,800

Calculation of consolidated net income attributable to Albeniz’s shareholders – Year 4

Net income Albeniz                                                                                                     29,700

Less:  Dividends from Bach (8,000 ´ 80%)                                                                  6,400

                                                                                                                           23,300

Net income Bach                                                                                 17,500

Less: Acq. diff. amort.                                                                           3,300

                                                                                                             14,200

                                                                                                      80%             11,360

                                                                                                                           34,660

Calculation of consolidated retained earnings Dec. 31, Year 4

Retained earnings Albeniz                                                                                         170,000

Retained earnings Bach                                                                     163,500

Acquisition retained earnings                                                              30,000

Increase since acquisition                                                                   133,500

Less: acq. diff. amortization (39,900 + 3,300)                                   43,200

Adjusted increase since acquisition                                                     90,300                           (b)

                                                                                                      80%             72,240

                                                                                                                         242,240

Calculation of non-controlling interest – Dec. 31, Year 4 (Method 1)

Bach –  Common shares                                                                                            200,000

Retained earnings                                                                                         163,500

                                                                                                                      363,500

Unamortized acquisition differential                                                             66,800

                                                                                                                      430,300

                                                                                                                           20%

                                                                                                                        86,060

Calculation of non-controlling interest – Dec. 31, Year 4 (Method 2)

NCI, date of acquisition (a)                                                                             68,000

Adjusted change in Bach’s retained earnings (b)                                            90,300

NCI’s share at 20%                                                                                          18,060

Non-controlling interest – Dec. 31, Year 4                                                      86,060

(a)

Albeniz Company

Consolidated Income Statement

For the Year Ended December 31, Year 4

Sales (600,000 + 400,000)                                                                                      1,000,000

Interest income                                                                                                              6,700

                                                                                                                                1,006,700

Cost of goods sold (334,000 + 225,000)                                                                   559,000

Distribution expense (20,000 + 70,000 + 1,200 + 2,100)                                            93,300

Selling and admin. (207,000 + 74,000)                                                                     281,000

Financing expense (1,700 + 6,000)                                                                                7,700

Income taxes (20,700 + 7,500)                                                                                    28,200

           969,200

Net income                                                                                                                   37,500

Attributable to:

   Albeniz’s shareholders                                                                                              34,660

   Non-controlling interest [20% ´ (17,500 – 3,300)]                                                    2,840

                                                                                     37,500

(b)

Albeniz Company

Consolidated Balance Sheet

December 31, Year 4

Cash (40,000 + 21,000)                                                                                               61,000

Accounts receivable (92,000 + 84,000)                                                                     176,000

Inventories (56,000 + 45,000)                                                                                   101,000

Land (20,000 + 60,000 + 20,000)                                                                              100,000

Plant and equipment (200,000 + 700,000 - 240,000 + 18,000)                                 678,000

Accumulated deprec. (80,000 + 350,000 – 240,000 + 4,800)                                (194,800)

Miscellaneous intangibles                                                                                           33,600

      954,800

Accounts payable (130,000 + 96,500)                                                                       226,500

Advances payable (0 + 100,000 – 100,000)                                                                         0

Common shares                                                                                                          400,000

Retained earnings                                                                                                      242,240

Non-controlling interest                                                                                               86,060

ekkarill92 answered 2 years ago
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