Nama: Alya Sufi Ikrima

NIM: 041911333248
Kelas: A1-SP
Tugas Pertemuan Ketiga - An Introduction to Consolidated Financial Statements

Ex 3-8 Calculate consolidated balance sheet amounts with goodwill and noncontrolling
interest
Pop Corporation acquired an 80 percent interest in Son Corporation on January 2, 2016, for
$1,400,000. On this date the capital stock and retained earnings of the two companies were as
follows (in thousands):
Pop Son
Capital stock $3,600 $1,000
Retained earnings 1,600 200
The assets and liabilities of Son were stated at fair values equal to book values when Pop
acquired its 80 percent interest. Pop uses the equity method to account for its investment in
Son. Net income and dividends for 2016 for the affiliated companies were as follows (in
thousands):
Pop Son
Net income $600 $180
Dividends declared 360 100
Dividends payable December 31, 2016 180 50
Required: Calculate the amounts at which the following items should appear in the
consolidated balance sheet on December 31, 2016.
1. Capital stock
2. Goodwill
3. Consolidated retained earnings
4. Noncontrolling interest
5. Dividends payable
Answer:
1. The capital stock that appears in a consolidated balance sheet is the capital stock of
the parent. So, the amount of capital stock is $3,600.
2. Investment cost at January 2, 2011 (80% interest) $1,400
Implied total fair value of Sof ($1,400 / 80%) $1,750
Book value of Son (100%) ($1,200)
Excess is considered goodwill
since no other fair value information is given. $550
 3. Pop’s retained earnings January 2 $1,600
(equal to beginning consolidated retained earnings)
Add: Net income of Pop 600
(equal to controlling share of consolidated net income)
Less: Dividends declared by Pop (360)
Consolidated retained earnings December 31 $1,840

4. Capital stock and retained earnings of Son on January 2 $1,200

Add: Son’s net income 180
Less: Dividends declared by Son (100)
Son’s stockholders’ equity December 31 1,280
Noncontrolling interest percentage 20%
Noncontrolling interest at book value $256
Add: 20% Goodwill 110
Noncontrolling interest December 31 $366

5. Dividends payable to stockholders of Pop $180

Dividends payable to noncontrolling stockholders ($50 x 20%) 10
Dividends payable to stockholders outside the Consolidated entity $190

Ex 3-10 Prepare consolidated income statement three years after acquisition

Comparative income statements of Pop Corporation and Son Corporation for the year ended
December 31, 2018, are as follows (in thousands):
Pop Son
Sales $3,200 $1,000
Income from Son 261 —
Total revenue 3,461 1,000
Less: Cost of goods sold 1,800 400
Operating expenses 800 300
Total expenses 2,600 700
Net income $ 861 $ 300
ADDITIONAL INFORMATION
1. Son is a 90 percent–owned subsidiary of Pop, acquired by Pop for $1,620,000 on January
1, 2016, when Son’s stockholders’ equity at book value was $1,400,000.
2. The excess of the cost of Pop’s investment in Son over book value acquired was allocated
$60,000 to undervalued inventories that were sold in 2016, $40,000 to undervalued
equipment with a four-year remaining useful life, and the remainder to goodwill.
Required: Prepare a consolidated income statement for Pop Corporation and Subsidiary for
the year ended December 31, 2018.
Answer:
POP AND SON CORPORATIONS
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2018 (IN THOUSANDS)
Sales $4,200
Cost of goods sold $2,200
Gross profit $2,000
Deduct: Operating expense $1,110
Consolidated net income $890
Deduct: Noncontrolling interest share $29
Controlling interest share $861

Investment cost Jan 1, 2016 (90% interest) $1,620

Implied total FV of Son ($1,620 / 90%) $1,800
Son’s BV acquired (100%) ($1,400)
Excess of FV over BV $400

Excess allocated to:

Inventories $60
Equipment $40
Goodwill $300
Excess of FV over BV $400

Operating expense:
Combined operating expense of Pop and Son $1,100
Add: Depreciation on excess allocated to equipment ($40/4 years) 10
Consolidated operating expense $1,110

P 3-2 Allocation schedule for fair value/book value differential and consolidated balance
sheet at acquisition
Pop Corporation acquired 70 percent of the outstanding common stock of Son Corporation on
January 1, 2016, for $350,000 cash. Immediately after this acquisition the balance sheet
information for the two companies was as follows (in thousands):
 Son
Pop Book Value Book Value Fair Value
Assets
Cash $ 70 $ 40 $ 40
Receivables—net 160 60 60
Inventories 140 60 100
Land 200 100 120
Buildings—net 220 140 180
Equipment—net 160 80 60
Investment in Son 350 — —
Total assets $1,300 $480 $ 560
Liabilities and Stockholders’ Equity
Accounts payable $ 180 $160 $160
Other liabilities 20 100 80
Capital stock, $20 par 1,000 200
Retained earnings 100 20
Total equities $1,300 $480
Required:
1. Prepare a schedule to assign the difference between the fair value of the investment in
Son and the book value of the interest to identifiable and unidentifiable net assets.
2. Prepare a consolidated balance sheet for Pop Corporation and Subsidiary at January 1,
2016.
Answer:
1. (in thousands)
Cost of investment in Son $350
Implied FV of Son ($350 / 70%) $500
BV of Son (220)
Excess FV over BV $280
Excess allocated:
FV BV Allocation
Inventories $100 $60 $40
Land $120 $100 $20
Building-net $180 $140 $40
Equipment-net $60 $80 ($20)
Other liabilities $80 $100 20
Allocates to identifiable net assets 100
 Goodwill for the remainder 180
Excess FV over BV $280
2. PARENT CORPORATION AND SUBSIDIARY CONSOLIDATED
BALANCE SHEET WORKPAPER
DECEMBER 31, 2016

Cash ($70 + $40) $110

Receivables-net ($160 + $60) $220
Inventories ($140 + $60 + $40) $240 $570

Land ($200 + $100 + $20) $320

Buildings-net ($220 + $140 + $40) $400
Equipment-net ($160 + $80 - $20) $220 $940
Goodwill (from consolidation) $180
Total assets $1,690

Accounts payable ($180 + $160) $340

Other liabilities ($20 + $100 - $20) $100 $440

Capital stock $1,000

Retained earnings $100
Equity of controlling stockholder’s $1,100
Noncontrolling interest (70% x $500) $150 $1,250
Total liabilities and stockholder’s equity $1,690