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Student Name: Class: Problem 03-26 Part c.

only PATRICK COMPANY AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31 Consolidation Entries Debit Credit Consolidated Totals

Accounts Revenues Cost of goods sold Depreciation expense Amortization expense Income of O'Brien Net income Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Cash Receivables Inventory Investment in O'Brien

Patrick O'Brien $ (1,125,000) $ (520,000) 300,000 228,000 75,000 70,000 25,000 (210,000) $ (935,000) $ (222,000) $ (700,000) $ (935,000) 142,000 $ (1,493,000) $ $ 185,000 225,000 175,000 680,000 $ (250,000) (222,000) 80,000 (392,000) 105,000 56,000 135,000 -

Trademarks Customer relationships Equipment (net) Goodwill Total assets Liabilities Common stock Retained earnings Total liabilities and equity

474,000 925,000 $ 2,664,000 $

60,000 272,000 628,000 (136,000) (100,000) (392,000) (628,000) 56,000 (964,000)

(771,000) $ (400,000) (1,493,000) $ (2,664,000) $ 225,000 (3,932,000)

Parentheses indicate a credit balance.

Given Data P03-26: PATRICK CORPORATION O'Brian Company outstanding common stock acquired by Patrick Corporation Cash paid by Patrick Corporation Carrying amount of O'Brien's net assets O'Brien assets unrecorded or differences in valuation: Book Values $ 60,000 342,000 Fair Values $ 160,000 75,000 312,000 100% $ $ 550,000 350,000

Trademarks (indefinite life) Customer relationships (5-year life) Equipment (10-year life

O'Brien's reported retained earnings at date of purchase Book value for O'Brien at date of purchase O'Brien's royalty agreements undervalued by Remaining life of O'Brien's royalty agreements - years Fair value of O'Brien's trademark Remaining life of O'Brien's trademark - years Year-end Financial Statements Revenues Cost of goods sold Depreciation expense Amortization expense Income from O'Brien Net income Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Cash Receivables Inventory Investment in O'Brien Trademarks Customer relationships Equipment (net) Goodwill Total assets Liabilities Common stock Retained earnings, 12/31 Total liabilities and equity

$ $ $ $

230,000 360,000 60,000 6 50,000 10

Patrick O'Brien $ (1,125,000) $ (520,000) 300,000 228,000 75,000 70,000 25,000 (210,000) $ (935,000) $ (222,000) $ (700,000) $ (935,000) 142,000 $ (1,493,000) $ $ 185,000 225,000 175,000 680,000 474,000 925,000 $ 2,664,000 $ $ (250,000) (222,000) 80,000 (392,000) 105,000 56,000 135,000 60,000 272,000 628,000 (136,000) (100,000) (392,000) (628,000)

(771,000) $ (400,000) (1,493,000) $ (2,664,000) $

Student Name: Class: Problem 03-27 Part a. Michael Company and Aaron Company - Fair Value allocation and Annual Amortization Aaron fair value Book value of subsidiary Excess fair over book value Annual Excess Amortizations

Assigned to specific accounts based on fair market value: Royalty agreements Trademark Total

Life (years)

-Conversion to initial value method for years prior to 2013 Aaron retained earnings, 1/1/13 Retained earnings at date of purchase Increase since date of purchase Excess amortization expenses Conversion to equity method for years prior to 2013

Student Name: Class: Problem 03-27 Part a. Consolidated Worksheet MICHAEL COMPANY AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2013 Consolidation Entries Debit Credit Consolidated Totals

Accounts Revenues Cost of goods sold Amortization expense Dividend income Net income Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Cash Receivables Inventory Investment in Aaron Co. Copyrights Royalty agreements Trademark Total assets Liabilities Preferred stock Common stock Additional paid-in capital Retained earnings, 12/31 Total liabilities and equity

Michael (610,000) 270,000 115,000 (5,000) (230,000) (880,000) (230,000) 90,000 (1,020,000) 110,000 380,000 560,000 470,000 460,000 920,000 2,900,000 (780,000) (300,000) (500,000) (300,000) (1,020,000) (2,900,000)

Aaron (370,000) 140,000 80,000 (150,000)

(490,000) (150,000) 5,000 (635,000) 15,000 220,000 280,000 340,000 380,000 1,235,000 (470,000) (100,000) (30,000) (635,000) (1,235,000)

Try again!

Parentheses indicate a credit balance.

Student Name: Class: Problem 03-27 Part b. Equity method - What account balances would be altered on Michael's financial statements? New Balance

Account

Part c. Equity method - What changes would be necessary in the consolidation entries in the December 31, 2013 Consolidation Worksheet?

Part d. Equity method - What changes would be created in the consolidation figures to be reported by this combination.

Given Data P03-27: MICHAEL COMPANY Aaron Company outstanding common stock acquired by Michael Company Michael Company's $1 par common stock issued for acquisition - number of shares Fair market value of Michael stock - per share Aaron' reported retained earnings at date of purchase Book value for Aaron at date of purchase Aaron's royalty agreements undervalued by Remaining life of Aaron's royalty agreements - years Fair value of Aaron's trademark Remaining life of Aaron's trademark - years 100% $ $ $ $ $ $ 20,000 23.50 230,000 360,000 60,000 6 50,000 10

Revenues Cost of goods sold Amortization expense Dividend income Net income Retained earnings, 1/1/13 Net income Dividends paid Retained earnings, 12/31/13 Cash Receivables Inventory Investment in Aaron Company Copyrights Royalty agreements Total assets Liabilities Preferred Stock Common stock Additional paid-in capital Retained earnings, 12/31/13 Total liabilities and equity

Michael Aaron Company Company 12/31/2013 12/31/2013 $ (610,000) $ (370,000) 270,000 140,000 115,000 80,000 (5,000) $ (230,000) $ (150,000) $ (880,000) $ (230,000) 90,000 $ (1,020,000) $ $ 110,000 380,000 560,000 470,000 460,000 920,000 $ 2,900,000 $ $ (490,000) (150,000) 5,000 (635,000)

15,000 220,000 280,000 340,000 380,000 $ 1,235,000

(780,000) $ (470,000) (300,000) (500,000) (100,000) (300,000) (30,000) (1,020,000) (635,000) $ (2,900,000) $ (1,235,000)

Student Name: Class: Problem 03-28

a. How was $135,000 Equity in Income of Small balance computed? Life (years) Excess Amortizations

Fair value allocations Land Equipment Goodwill Total

b. Totals to be reported by business combination for year ending December 31, 2013 Account Name Revenues Balance Explanation

Cost of goods sold

Depreciation expense

Equity in Income of Small

Net income

Retained earnings, 1/1/13

Dividends paid

Retained earnings, 12/31/13

Current assets

Investment in Small

Land

Buildings

Student Name: Class: Problem 03-28 Equipment

Goodwill

Total assets

Liabilities

Common stock

Retained earnings, 12/31/13

Total liabilities & equity

Student Name: Class: Problem 03-28 Part c. Consolidated Worksheet GIANT COMPANY AND SMALL COMPANY Consolidation Worksheet For Year Ending December 31, 2013 Giant Company (1,175,000) 550,000 172,000 (135,000) (588,000) (1,417,000) (588,000) 310,000 $ (1,695,000) $ 398,000 995,000 Small Company (360,000) 90,000 130,000 (140,000) (620,000) (140,000) 110,000 (650,000) 318,000 Consolidation Entries Debit Credit Consolidated Totals

Accounts Revenues Costs of goods sold Depreciation expense Equity income of Small Net income Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Current assets Investment in Small

Land Buildings (net) Equipment (net) Goodwill Total assets Liabilities Common stock Retained earnings Total liabilities and equity

440,000 304,000 648,000 2,785,000 (840,000) (250,000) (1,695,000) (2,785,000)

165,000 419,000 286,000 1,188,000 (368,000) (170,000) (650,000) (1,188,000)

(3,143,000)

Correct!

Parentheses indicate a credit balance.

Part d.

GIANT COMPANY General Journal Account Goodwill impairment loss Investment in Small Debit Credit

Given Data P03-28: Small outstanding common stock purchased by Giant Portion of fair value price applied to undervalued land Portion of fair value price applied to equipment with 10-year life Portion of unallocated fair value price allocated to goodwill Amount Small owes Giant on December 31, 2013 100% 90,000 50,000 60,000 10,000

$ $ $ $

Revenues Cost of goods sold Depreciation expense Equity in income of Small Net income Retained earnings, 1/1/13 Net income Dividends paid Retained earnings, 12/31/13 Current assets Investment in Small Land Buildings (net) Equipment (net) Goodwill Total assets Liabilities Common stock Retained earnings Total liabilities and equity

Giant Small 12/31/2013 12/31/2013 $ (1,175,000) $ (360,000) 550,000 90,000 172,000 130,000 (135,000) $ (588,000) $ (140,000) $ (1,417,000) $ (588,000) 310,000 (1,695,000) $ 398,000 995,000 440,000 304,000 648,000 2,785,000 $ (620,000) (140,000) 110,000 (650,000)

$ $

$ $

318,000 165,000 419,000 286,000 $ 1,188,000

(840,000) $ (368,000) (250,000) (170,000) (1,695,000) (650,000) (2,785,000) $ (1,188,000)

Student Name: Class: Problem 03-30

a. Fair Value Allocation and Annual Amortization Life (years) Annual Excess Amortizations

Allocation Land Buildings Equipment Customer list Total

Account Name Revenues

Balance

Explanation

Cost of goods sold

Depreciation expense

Amortization expense

Buildings (net)

Equipment (net)

Customer list

Common stock

Additional paid-in capital

Student Name: Class: Problem 03-30 Part b. Why can consolidated totals be determined without knowing the consolidation method used?

Part c. If the equity method is used by the parent, what consolidation entries would be used? MERGARONITE COMPANY General Journal Account Consolidation Entry S Common stock (Hill) Additional paid-in capital (Hill) Retained earnings, 1/1 Investment in Hill
(To eliminate beginning stockholders' equity of subsidiary)

Debit

Credit

Consolidation Entry A Land Equipment (net) Customer list (net) Buildings (net) Investment in Hill
(To record unamortized allocation balances as of beginning of current year)

Consolidation Entry I Investment income Investment in Hill


(To remove equity income recognized during year-equity method accrual [based on subsidiary's income] less amortization for the year)

Consolidation Entry D Investment in Hill Dividends paid


(To remove intra-entity dividend payments)

Consolidation Entry E Amortization expense Depreciation expense Buildings Equipment Customer list
(To recognize excess acquisition-date fair-value amortizations for the period)

Given Data P03-30: Mergaronite Hill 12/31/2013 12/31/2013 $ (600,000) $ (250,000) 280,000 100,000 120,000 50,000 Not given NA (900,000) (600,000) 130,000 40,000 200,000 690,000 300,000 90,000 500,000 140,000 200,000 250,000 (400,000) (310,000) (300,000) (40,000) (50,000) (160,000)

Revenues Cost of goods sold Depreciation expense Investment income Retained earnings, 1/1/13 Dividends paid Current assets Land Buildings (net) Equipment (net) Liabilities Common stock Additional paid-in capital

Mergaronite's $10 par common stock issued for acquisition of Hill - number of shares Fair market value of Mergaronite stock - per share Hill's land undervalued by Hill's buildings overvalued by Hill's equipment undervalued by Remaining life of buildings - years Remaining life of equipment - years Appraised value of Hill's customer list Remaining life of Hill's customer list - years

$ $ $ $

7,000 100 20,000 30,000 60,000 10 5 100,000 20

Student Name: Class: Problem 03-31

Part a. Consolidated Worksheet PETERSON AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2013 Adjustments & Eliminations Debit Credit

Peterson Income Statement Revenues Cost of goods sold Gain on bargain purchase Depreciation and amortization Equity earnings from Santiago Net income Statement of Retained Earnings Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Balance Sheet Current assets Investment in Santiago $ (535,000) $ 170,000 (100,000) 125,000 (160,000) (500,000) $

Santiago, (495,000) 155,000 140,000 (200,000)

Consolidated

$ (1,500,000) $ (500,000) 200,000 $ (1,800,000) $

(650,000) (200,000) 50,000 (800,000)

190,000 1,300,000

300,000 -

Trademarks Patented technology Equipment Total assets Liabilities Common stock Retained earnings, 12/31 Total liabilities and equity Parentheses indicate a credit balance.

100,000 300,000 610,000 $ 2,500,000 $

200,000 400,000 300,000 $ 1,200,000

(165,000) $ (100,000) (535,000) (300,000) (1,800,000) (800,000) $ (2,500,000) $ (1,200,000)

Given Data P03-31: PETERSON CORPORATION Santiago outstanding voting stock purchased by Peterson Fair value consideration paid to Santiago Santiago book value at acquisition date Patented technology account undervalued Estimated remaining life in years Financial Statements December 31, 2013 Peterson Corp. Income Statement Revenues Cost of goods sold Gain on bargain purchase Depreciation and amortization Equity earnings from Santiago Net income Statement of Retained Earnings Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Balance Sheet Current assets Investment in Santiago Trademarks Patented technology Equipment Total assets Liabilities Common stock Retained earnings, 12/31 Total liabilities and equity $ (535,000) $ 170,000 (100,000) 125,000 (160,000) (500,000) $ Santiago, Inc. (495,000) 155,000 140,000 (200,000)

100% $ 1,090,000 $ 950,000 $ 240,000 6

(1,500,000) $ (500,000) 200,000 (1,800,000) $

(650,000) (200,000) 50,000 (800,000)

$ $

190,000 1,300,000 100,000 300,000 610,000 2,500,000

300,000 200,000 400,000 300,000 $ 1,200,000

(165,000) $ (100,000) (535,000) (300,000) (1,800,000) (800,000) (2,500,000) $ (1,200,000)

Student Name: Class: Problem 03-32

BRANSON General Journal Account a. Acquisition Method: Investment in Wolfpack, Inc. Contingent performance obligation Cash b. 12/31/2012 Loss from increase in contingent performance obligation Contingent performance obligation 12/31/2013 Loss from increase in contingent performance obligation Contingent performance obligation 12/31/2013 Contingent performance obligation Cash c. Equity Method: Common stock - Wolfpack Retained earnings - Wolfpack Investment in Wolfpack Royalty agreements Goodwill Investment in Wolfpack Equity earnings of Wolfpack Investment in Wolfpack Investment in Wolfpack Dividends paid Amortization expense Royalty agreements Debit Credit

Student Name: Class: Problem 03-32 d. Initial Value Method: Investment in Wolfpack Retained earnings - Branson Common stock - Wolfpack Retained earnings - Wolfpack Investment in Wolfpack Royalty agreements Goodwill Investment in Wolfpack Dividend income Dividends paid Amortization expense Royalty agreements

Given Data P03-32: Branson paid cash for all outstanding common stock of Wolfpack, Inc. Wolfpack's book value at date of acquisition Book value of Wolfpack's common stock Book value of Wolfpack's retained earnings Fair value of Wolfpack's unrecorded royalty agreements Remaining life of Wolfpack's royalty agreements Additional cash paid to previous owners of Wolfpack Probability adjusted present value of contingent consideration Increased present value of contingency at 12/31/12 Wolfpack's balances during subsequent years: Net Income $ 65,000 75,000 Dividends Paid $ 25,000 35,000 $ $ $ $ $ $ $ $ 465,000 340,000 200,000 140,000 100,000 10 50,000 35,000 40,000

2012 2013

Student Name: Class: Problem 03-34

a. Investment in Jasmine Company Schedule 1 - Acquisition-Date Fair Value Allocation and Amortization Jasmine's acquisition-date fair value Book value of Jasmine Fair value in excess of book value Allocation to specific accounts based on individual fair values: Equipment Buildings (overvalued) Goodwill Total Life (years) Annual Excess Amortizations

Investment in Jasmine Company - 12/31/13 Jasmine's acquisition-date fair value 2010 Increase in book value of subsidiary 2010 Excess amortizations 2011 Increase in book value of subsidiary 2011 Excess amortizations 2012 Increase in book value of subsidiary 2012 Excess amortizations Investment in Jasmine Company 12/31/13

Student Name: Class: Problem 03-34 b. Equity in subsidiary earnings Income accrual Excess amortizations Equity in subsidiary earnings c. Consolidated net income Consolidated revenues Consolidated expenses Excess amortization expenses Consolidated net income d. Consolidated equipment Book values added together Allocation of purchase price Excess depreciation Consolidated equipment e. Consolidated buildings Book values added together Allocation of acquisition-date fair value Excess depreciation Consolidated buildings f. Consolidated goodwill Allocation of excess fair value to goodwill g. Consolidated common stock h. Consolidated retained earnings

Given Data P03-34: Tyler paid cash for all outstanding stock of Jasmine Jasmine's book value at date of acquisition Jasmine's equipment was undervalued Remaining life of Jasmine's equipment Jasmine's building was overvalued Remaining life of Jasmine's building Jasmine's balances during subsequent years: Net Income $ 50,000 60,000 30,000 Dividends Paid $ 10,000 40,000 20,000 $ 206,000 140,000 54,400 8 10,000 20

2011 2012 2013

Financial records as of December 31, 2011: Tyler Jasmine Company Company $ (310,000) $ (104,000) 198,000 74,000 320,000 50,000 220,000 68,000 (290,000) (50,000) (410,000) (160,000)

Revenues-operating Expenses Equipment (net) Buildings (net) Common stock Retained earnings, 12/31/13

Student Name: Class: Problem 03-35 a. Picante 1/1/12 Investment in Salsa account balance Consideration transferred 1/1/12 Increase in Salsa's RE to 1/1/13 In-process R&D write-off in 2012 Amortization 2012 Income 2013 Dividends paid in 2013 Amortization 2013 Investment balance 12/31/13

Part b. Consolidated Worksheet


PICANTE AND SUBSIDIARY SALSA Consolidated Worksheet For Year Ending December 31, 2013 12/31/13 Picante (3,500,000) 1,600,000 540,000 (203,000) (1,563,000) (3,000,000) (1,563,000) 200,000 (4,363,000) 228,000 840,000 900,000 2,042,000 12/31/13 Salsa (1,000,000) 630,000 160,000 (210,000) (800,000) (210,000) 25,000 (985,000) 50,000 155,000 580,000

Accounts Sales Cost of goods sold Deprecation expense Subsidiary income Net income Retained earnings 1/1/13 Net income Dividends paid Retained earnings 12/31/13 Cash Accounts receivable Inventory Investment in Salsa

Adjustments

Consolidated

Land Equipment (net) Goodwill Total assets Accounts payable Long-term debt Common stock - Picante Common stock - Salsa Retained earnings, 12/31/13 Total liabilities and equity Parentheses indicate a credit balance.

3,500,000 5,000,000 290,000 12,800,000 (193,000) (3,094,000) (5,150,000) (4,363,000) (12,800,000)

700,000 1,700,000 3,185,000 (400,000) (800,000) (1,000,000) (985,000) (3,185,000)

Given Data P03-35: Picante paid cash for all outstanding voting stock of Salsa Salsa's balance sheet at 1/1/11: Cash Accounts Receivable Land Equipment (net) $ 14,000 100,000 700,000 1,886,000 $ 2,700,000 $ 120,000 930,000 1,000,000 650,000 $ 2,700,000 $ 1,765,000

Accounts Payable Long-term Debt Common Stock Retained Earnings

Allocation at acquisition date: Fair value of consideration transferred Book value acquired Excess fair value over book value To in-process research and development To equipment (8 year remaining life) To goodwill (indefinite life) Future benefits expected from Salsa 's R & D Trial Balances December 31, 2013 Picante Salsa $ (3,500,000) $ (1,000,000) 1,600,000 630,000 540,000 160,000 (203,000) $ (1,563,000) $ (210,000) $ (3,000,000) $ (1,563,000) 200,000 $ (4,363,000) $ $ 228,000 840,000 900,000 2,042,000 3,500,000 5,000,000 290,000 $ 12,800,000 $ $ (800,000) (210,000) 25,000 (985,000) $ 1,765,000 1,650,000 115,000 $ 44,000 56,000 $ $ 100,000 15,000 44,000

Sales Cost of goods sold Deprecation expense Subsidiary income Net income Retained earnings, 1/1/13 Net income Dividends paid Retained earnings, 12/31/13 Cash Accounts receivable Inventory Investment in Salsa Land Equipment (net) Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings, 12/31/13

50,000 155,000 580,000 700,000 1,700,000 $ 3,185,000

(193,000) $ (400,000) (3,094,000) (800,000) (5,150,000) (1,000,000) (4,363,000) (985,000)

Total liabilities and equities

$ (12,800,000) $ (3,185,000)

Student Name: Class: Problem 03-36 a. Relevant initial test to determine whether goodwill could be impaired 12/31 Carrying value 12/31 Fair value

Result:

b. Calculation of Lydia reporting unit loss for the year 12/31 Fair value for Lydia Fair value of assets and liabilities Cash Receivables (net) Movie library Broadcast licenses Equipment Current liabilities Long-term debt Total net fair value Implied fair value for goodwill Carrying value for goodwill Impairment loss

Journal entry by Prine:

c. Consolidated net income for the year:

d. 12/31 Consolidated goodwill:

e. 12/31 Consolidated broadcast licenses

f. Consolidated Worksheet
PRINE and LYDIA Consolidated Worksheet December 31 Adjusting Entries Debit Consolidated Totals

Accounts Revenues Expenses Equity in Lydia earnings Impairment loss Net income/loss Retained earnings, 1/1 Dividends paid Net Income Retained earnings, 12/31

Prine, Inc. (18,000,000) 10,350,000 (150,000) 33,106,000 25,306,000 (52,000,000) 300,000 25,306,000 (26,394,000)

Lydia Co. (12,000,000) 11,800,000 (200,000) (2,000,000) 80,000 (200,000) (2,120,000)

Credit

Cash Receivables (net) Investment in Lydia Co.

260,000 210,000 86,964,000

109,000 897,000 -

Broadcast licenses Movie library Equipment (net) Goodwill Total assets Current liabilities Long-term debt Common stock Retained earnings, 12/31 Total liabilities and equity

350,000 365,000 136,000,000 224,149,000 (755,000) (22,000,000) (175,000,000) (26,394,000) (224,149,000)

14,014,000 45,000,000 17,500,000 77,520,000 (650,000) (7,250,000) (67,500,000) (2,120,000) (77,520,000)

Parentheses indicate a credit balance.

Given Data P03-36: Lydia common stock purchased by Prine Fair value paid in cash and stock Lydia's equipment undervalued by: Lydia's goodwill at acquisition Lydia's equipment life remaining in years Lydia reporting unit reduced fair value at 12/31 Fair values of reporting unit through first year: Cash Receivables (net) Movie library (25-year life) Broadcast licenses (indefinite life) Equipment (10-year life) Current liabilities Long-term debt Balances at December 31: Revenues Operating expenses Equity in Lydia earnings Dividends paid Retained earnings 1/1 Cash Receivables (net) Investment in Lydia Broadcast licenses Movie library Equipment (net) Current liabilities Long-term debt Common stock Prine, Inc Lydia Co. $ (18,000,000) $ (12,000,000) 10,350,000 11,800,000 (150,000) N/A 300,000 80,000 (52,000,000) (2,000,000) 260,000 109,000 210,000 897,000 120,070,000 N/A 350,000 14,014,000 365,000 45,000,000 136,000,000 17,500,000 (755,000) (650,000) (22,000,000) (7,250,000) (175,000,000) (67,500,000) 100% $ 120,000,000 $ 500,000 $ 50,000,000 10 $ 110,000,000 Fair Values 1/1 12/31 $ 215,000 $ 109,000 525,000 897,000 40,000,000 60,000,000 15,000,000 20,000,000 20,750,000 19,000,000 (490,000) (650,000) (6,000,000) (6,250,000)