Question

The individual financial statements for Peter Company and Smith Co. for the year ended December 31, 2017, are attached in the Excel spreadsheet. Peter acquired a 91 percent interest in Smith on January 1, 2016, in exchange for various considerations totaling $1,078,350. At the acquisition date, the fair value of the non-controlling interest was $106,650 and Smith’s book value was $677,000. Smith had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $335,000. This customer list is being amortized over 10 years.

Peter sold Smith a building with a $113,000 book value (cost of $275,000) for $135,000, with a remaining life of 10 years on January 2, 2016. In addition, on January 2, 2017, Peter reports $1,000,000 in bonds outstanding with a book value of $925,000, with a 4.0% coupon rate. Smith purchased 50 percent of these bonds on the open market at a price of $410,000 on that date. The Bonds come due December 31, 2019.

Smith transfers inventory to Peter on a regular basis. In 2016, Smith shipped inventory costing $171,000 to Peter at a price of $225,000. During 2017, Smith shipped goods totaling $267,000, which cost Smith $197,580. In year-ended 2016, 35% of the goods, and in year-ended 2017 40% of the goods, had not been resold to third parties by the end of the year. In addition, at the end of 2017, Peter owes Smith $32,000 due to these shipments.

1) Prepare the “schedule” that allocates the purchase price and determines the amount of Goodwill, if any.

2) Prepare all the consolidation worksheet adjustment entries for 2017, including any supporting schedules as necessary. as follows:

• S, A, I, D, E entries

• P, G, *G, TI entries

• *TA, ED entries

• Bonds entry

• *C entry  

• Supporting schedules should include:

i. the calculation of the non-controlling interest in the income of Smith

ii. the non-controlling interest in the assets of Smith

iii. schedule supporting the Bond calculations for entry B

iv. schedule supporting the gross profit in inventory elimination

v. and the support for the *C entry

3) Prepare a consolidation worksheet that includes the proper posting of the worksheet entries.

4) Additional information: • Income in 2016 reported by Smith was $262,000; • Dividends paid in 2016 by Smith was $42,000.

Note: Your final submission will be the Excel worksheet which will contain all the data / support necessary to reach a final consolidation worksheet. Many of the points are associated with the correct calculation (and display of the calculations) for the required journal entries.

Answer 1