Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $484,900 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:

At December 31, 2018, the following financial information is available for consolidation:

Prem Company acquired 60 percent ownership of Cooper Company's voting shares on January 1, 20X2. During 20X5, Prem purchased inventory for $20,000 and sold the full amount to Cooper Company for $30,000. On December 31, 20X5, Cooper's ending inventory included $6,000 of items purchased from Prem. Also in 20X5, Cooper purchased inventory for $50,000 and sold the units to Prem for $80,000. Prem included $20,000 of its purchase from Cooper in ending inventory on December 31, 20X5.

Summary income statement data for the two companies revealed the following:

1. Compute the amount to be reported as sales in the 20X5 consolidated income statement.

2. Compute the amount to be reported as cost of goods sold in the 20X5 consolidated income statement.

3. What amount of income will be assigned to the noncontrolling shareholders in the 20X5 consolidated income statement?

4. What amount of income will be assigned to the controlling interest in the 20X5 consolidated income statement?

Consolidation Working Paper, Noncontrolling Interest, Intercompany Merchandise Transactions

Kellogg Company (Kellogg's) acquired 80% of the outstanding stock of Wholesome & Hearty Foods ("Wholesome") at the end of 2007 for cash and stock totaling $144 million. Assume that Wholesome's assets and liabilities were fairly reported at the date of acquisition, except for these items:

Wholesome's book value at the date of acquisition was $82.8 million, and the fair value of the 20% noncontrolling interest was $42 million. It is now December 31, 2013 (the end of the sixth year since acquisition). Impairment testing on the goodwill arising in this acquisition reveals that total impairment during 2008-2012 is $2.4 million, and impairment in 2013 is $1.2 million.

Wholesome sells merchandise and raw materials to Kellogg's at a markup of 30% on cost. Here is information on these intercompany sales (in thousands):

Below are the separate trial balances of Kellogg's and Wholesome at December 31, 2013.

In your answers below, present all numbers in thousands; round answers to the nearest thousand.

(a) Calculate the initial goodwill arising from this acquisition, and its allocation to the controlling and noncontrolling interests.

When appropriate, use negative signs with your revaluation answers (left column only). Do not use negative signs with your answers in the right column.

(b) Prepare a schedule computing Kellogg's equity in net income of Wholesome and noncontrolling interest in net income for 2013.

Use negative signs with revaluation and inventory profit answers that reduce the total(s).

(c) Prepare a working paper to consolidate the trial balances of Kellogg's and Wholesome at December 31, 2013.

Remember to use negative signs with your credit balance answers in the Consolidated Balances column.

Date of Acquisition Consolidation Eliminating Entries, Bargain Purchase

Peregrine Company acquired 80 percent of Sparrow Company’s common stock for $20,000,000 in cash; fees paid to an outside firm to estimate the earning power of Sparrow and the fair values of its properties amounted to $2,500,000. Sparrow’s equity consisted of $3,000,000 in capital stock, $25,000,000 in retained earnings, $1,500,000 in accumulated other comprehensive loss, and $500,000 in treasury stock. Book values of Sparrow’s identifiable assets and liabilities approximated their fair values except as noted below:

Assume that the fair values above have been carefully evaluated for accuracy. The fair value of the noncontrolling interest is estimated to be $4,000,000 at the date of acquisition.

Required

a. Calculate the gain on acquisition and prepare Peregrine’s acquisition entry.

Enter answers in thousands ($20,000,000 equals $20,000 in thousands).

b. Prepare the working paper eliminating entries needed to consolidate Peregrine and Sparrow at the date of acquisition.

Enter answers in thousands ($20,000,000 equals $20,000 in thousands).

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:

At December 31, 2018, the following financial information is available for consolidation:

Page 83

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.

Player Company acquired 70 percent ownership of Scout Company’s voting shares on January 1, 20X2. During 20X5, Player purchased inventory for $29,000 and sold the full amount to Scout Company for $39,000. On December 31, 20X5, Scout’s ending inventory included $7,800 of items purchased from Player. Also in 20X5, Scout purchased inventory for $52,000 and sold the units to Player for $82,000. Player included $20,500 of its purchase from Scout in ending inventory on December 31, 20X5. Summary income statement data for the two companies revealed the following: Player Company Scout Company Sales $ 360,750 $ 210,000 Income from Scout 48,750 $ 409,500 $ 210,000 Cost of Goods Sold $ 233,000 $ 105,000 Other Expenses 65,000 25,000 Total Expenses $ (298,000 ) $ (130,000 ) Net Income $ 111,500 $ 80,000

Required:

a. Compute the amount to be reported as sales in the 20X5 consolidated income statement.

b. Compute the amount to be reported as cost of goods sold in the 20X5 consolidated income statement.

c. What amount of income will be assigned to the noncontrolling shareholders in the 20X5 consolidated income statement?

d. What amount of income will be assigned to the controlling interest in the 20X5 consolidated income statement?

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $487,350 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:

At December 31, 2018, the following financial information is available for consolidation:

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.

Consolidation Working Paper, Noncontrolling Interest, Intercompany Merchandise Transactions

Kellogg Company (Kellogg's) acquired 75% of the outstanding stock of Wholesome & Hearty Foods ("Wholesome") at the end of 2007 for cash and stock totaling $240 million. Assume that Wholesome's assets and liabilities were fairly reported at the date of acquisition, except for these items:

Wholesome's book value at the date of acquisition was $148 million, and the fair value of the 25% noncontrolling interest was $70 million. It is now December 31, 2013 (the end of the sixth year since acquisition). Impairment testing on the goodwill arising in this acquisition reveals that total impairment during 2008-2012 is $2 million, and impairment in 2013 is $1 million.

Wholesome sells merchandise and raw materials to Kellogg's at a markup of 30% on cost. Here is information on these intercompany sales (in thousands):

Below are the separate trial balances of Kellogg's and Wholesome at December 31, 2013.

In your answers below, present all numbers in thousands; round answers to the nearest thousand.

(a) Calculate the initial goodwill arising from this acquisition, and its allocation to the controlling and noncontrolling interests.

When appropriate, use negative signs with your revaluation answers (left column only). Do not use negative signs with your answers in the right column.

(b) Prepare a schedule computing Kellogg's equity in net income of Wholesome and noncontrolling interest in net income for 2013.

Use negative signs with revaluation and inventory profit answers that reduce the total(s).

(c) Prepare a working paper to consolidate the trial balances of Kellogg's and Wholesome at December 31, 2013.

Remember to use negative signs with your credit balance answers in the Consolidate Balances column.

Cobalt Ceramics, Inc., acquired a manufacturing facility (building) from Nickel Construction Company. Nickel completed construction of the facility on January 1, 2021. In payment for the $6 million lighthouse, Cobalt issued a five-year installment note to be paid in five equal payments at the end of each year. The payments include interest at the rate of 5.4%.

Instructions

1. Prepare the journal entry for Cobalt’s purchase of the facility on January 1, 2021.
2. Prepare the journal entry for the first installment payment on December 31, 2021.
3. Prepare the journal entry for the second installment payment on December 31, 2022.
4. What amount will Cobalt report as Notes Payable on its December 31, 2022 balance sheet?

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $550,200 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:

At December 31, 2018, the following financial information is available for consolidation:

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.