Problem 1

Company S

CS ($2 par, 100,000 shares outstanding) 200,000.00

APIC 800,000.00
Retained Earnings 400,000.00
Shareholder's Equity 1,400,000.00

Shareholder's Equity 1,400,000.00

Shares Outstanding 100,000.00
Book Value per Share 14.00

Scenario 1 (S issues 25,000 new shares to P for 15$ per share)

Total S Funds Raised 375,000.00
Increase in S Common Stock 50,000.00
Increase in S APIC 325,000.00
Subsidiary shares outstanding 125,000.00
Parent Ownership (Company P) 80%
NCI of Subsidiary 20%
Subsidiary SHE after Sale 1,775,000.00

Investment in Subsidiary Before Sale

Subsidiary SHE 1,400,000.00
Parent Proportionate Share 75%
BV of Parent's Investment in Subsidiary 1,050,000.00

NCI Before Sale

Subsidiary SHE 1,400,000.00
Parent Proportionate Share 25%
BV of Parent's Investment in Subsidiary 350,000.00

NCI (20%)
Beginning BV 350,000.00
Issuance of new Shares 5,000.00
Net Income 60,000.00
Dividends (24,000.00)
391,000.00

Company P Books January 1, Year 1

1.1 Investment in Subsidiary 370,000.00
Additional Paid-in Capital 5,000.00
Cash

Dec 31, Year 1

Common Stock 250,000.00
Additional Paid-in Capital 1,125,000.00
Retained Earnings 400,000.00
NCI in NI of Subsidiary 60,000.00
Income from Subsidiary 240,000.00
Investment in Subsidiary
NCI in NA of Subsidiary
Dividends Declared
 After Sale
1,775,000.00
80%
1,420,000.00 370,000.00

After Sale
1,775,000.00
20%
355,000.00 5,000.00

Inv in Sub (80%) = Common Stock APIC Retained Earnings

1,050,000.00 200,000.00 800,000.00 400,000.00
370,000.00 50,000.00 325,000.00
240,000.00 300,000.00
(96,000.00) (120,000.00)
1,564,000.00 250,000.00 1,125,000.00 580,000.00

1.2

375,000.00
1,564,000.00
391,000.00
120,000.00
Scenario 2 (S buys back 21,875 shares from P for 16$ per share)

Shares Outstanding 100,000.00

Shares Purchased back 21,875.00
Remaining Outstanding Shares 78,125.00

Ownership percentage of Parent 75,000.00

(21,875.00)
53,125.00
78,125.00
Ownership percentage of Parent 68%
Treasury Shares (21,875 * 16) 350,000.00
Before Sale After Sale
Subsidiary SHE 1,400,000.00 1,050,000.00
Parent Share 75% 68%
1,050,000.00 714,000.00

NCI Share 25% 32%

350,000.00 336,000.00

NCI (20%) Inv in Sub (80%)

Beginning BV 350,000.00 1,050,000.00
Repurchase of Shares (14,000.00) (336,000.00)
Net Income 60,000.00 240,000.00
Dividends (24,000.00) (96,000.00)
372,000.00 858,000.00

Company P Books January 1, Year 1

Cash 350,000.00
Additional Paid-in Capital 14,000.00
Investment in Subsidiary 336,000.00

Dec 31, Year 1

Common Stock 200,000.00
Additional Paid-in Capital 800,000.00
Retained Earnings 400,000.00
NCI in NI of Subsidiary 60,000.00
Income from Subsidiary 240,000.00
Investment in Subsidiary 858,000.00
NCI in NA of Subsidiary 372,000.00
Dividends Declared 120,000.00
Treasury Stock 350,000.00
336,000.00

14,000.00

= Common Stock APIC Retained Earnings Treasury Stock

200,000.00 800,000.00 400,000.00
(350,000.00)
300,000.00
(120,000.00)
200,000.00 800,000.00 580,000.00 (350,000.00)

1.3
Scenario 3 (S issues 25,000 new shares to NCI @ 17/share)

Parent proportionate share after issuance of new shares

Current Shares owned 75,000.00
Total Shares Oustanding 100,000.00 75%

Total Shares Oustanding 100,000.00

Issued to NCI 25,000.00
Total Shares after new issuance 125,000.00 60%

Issue Price 17.00

Book Value 14.00
3.00
Shares Issued 25,000.00
75,000.00
Parents Share 60%
45,000.00

NCI (20%) Inv in Sub (80%) =

Beginning BV 350,000.00 1,050,000.00
Issuance of new Shares 335,000.00 45,000.00
Net Income 60,000.00 240,000.00
Dividends (24,000.00) (96,000.00)
721,000.00 1,239,000.00

Company P Books January 1, Year 1

Investment in Subsidiary 45,000.00
Additional Paid-in Capital 45,000.00

Dec 31, Year 1

Common Stock 250,000.00
Additional Paid-in Capital 1,130,000.00
Retained Earnings 400,000.00
NCI in NI of Subsidiary 60,000.00
Income from Subsidiary 240,000.00
Investment in Subsidiary 1,239,000.00
NCI in NA of Subsidiary 721,000.00
Dividends Declared 120,000.00
Common Stock APIC Retained Earnings
200,000.00 800,000.00 400,000.00
50,000.00 330,000.00
300,000.00
(120,000.00)
250,000.00 1,130,000.00 580,000.00

1.4
Scenario 4 (S buys back 6,250 shares from NCI @18 per share)

Total Cost of repurchase 112,500.00

Total Shares Oustanding 100,000.00

Less Shares Acquired by S (6,250.00)
Remaining Shares Outstanding 93,750.00

Parent Ownership (75,000/93750) 80%

Before Sale After Sale

Subsidiary SHE 1,400,000.00 1,287,500.00
Parent Share 75% 80%
1,050,000.00 1,030,000.00

NCI (20%) Inv in Sub (80%)

Beginning BV 350,000.00 1,050,000.00
Repurchase of Shares (92,500.00) (20,000.00)
Net Income 60,000.00 240,000.00
Dividends (24,000.00) (96,000.00)
293,500.00 1,174,000.00

Company P Books January 1, Year 1

Additional Paid-in Capital 20,000.00
Investment in Subsidiary 20,000.00

Dec 31, Year 1

Common Stock 200,000.00
Additional Paid-in Capital 800,000.00
Retained Earnings 400,000.00
NCI in NI of Subsidiary 60,000.00
Income from Subsidiary 240,000.00
Investment in Subsidiary 1,174,000.00
NCI in NA of Subsidiary 293,500.00
Dividends Declared 120,000.00
Treasury Stock 112,500.00
20,000.00

= Common Stock APIC Retained Earnings Treasury Stock

200,000.00 800,000.00 400,000.00
(112,500.00)
300,000.00
(120,000.00)
200,000.00 800,000.00 580,000.00 (112,500.00)
 Company S Balance Sheet, Dec31 Year 0

Cash 233,000.00 AP
AR 300,000.00 WP
AR Allowance (16,000.00) DTL
Inv 210,000.00 LTD
DTA 15,000.00 Total Liab
Land 300,000.00 CS
Eqpt 500,000.00 APIC
Acc Dep (300,000.00) RE
Total SHE
Total Assets 1,242,000.00 Total L + SHE

What is the amount Company S's deferred tax asset at Dec. 31, Year 0? Which among the three temporary book-tax differ
Deferred Tax Asset Details Year 0
AR Tax Basis 16,000.00
30%
4,800.00

Warranty 34,000.00
30%
10,200.00
15,000.00

What is the amount Company S's deferred tax liability at Dec. 31, Year 0? Which among the three temporary book-tax diff
Deferred Tax Liab Details Year 0
Equipment BV 200,000.00
Eqpt Tax Basis 120,000.00
80,000.00
30%
24,000.00

Prepare the journal entry on Company P's books to record the acquisition

Investment in Subsidiary 1,200,000.00

Common Stock 1,000,000.00
Additional Paid-in Capital 200,000.00

Prepare the consolidation entries needed to prepare a consolidated balance sheet immediately after the acquisition.

AR, allowance (FV) 20,000.00

30%
DTA 6,000.00
DTA Year 0 4,800.00
Add to DTA 1,200.00

Land, FV 330,000.00
Land, Book Value 300,000.00
30,000.00
30%
Add to DTL 9,000.00

Equipment FV 180,000.00
Eqpt Tax Basis 120,000.00
60,000.00
30%
DTL 18,000.00
24,000.00
Deduct to DTL 6,000.00

Patent 22,000.00
30%
DTL 6,600.00

Common Stock 100,000.00

Additional Paid-in Capital 500,000.00
Retained Earnings 400,000.00
Investment in Subsidiary 1,000,000.00

CONSOLIDATION ENTRIES
Company P Company S DR
Cash 233,000.00
AR 300,000.00
AR Allowance (16,000.00)
Inv 210,000.00
DTA 15,000.00 1,200.00
Investment in S 1,200,000.00

Land 300,000.00 30,000.00

Eqpt 500,000.00
Acc Dep (300,000.00)
Goodwill 180,400.00
Patent 22,000.00
1,200,000.00 1,242,000.00
AP 84,000.00
WP 34,000.00
DTL 24,000.00
LTD 100,000.00
Total Liab 242,000.00
CS 1,000,000.00 100,000.00 100,000.00
APIC 200,000.00 500,000.00 500,000.00
RE 400,000.00 400,000.00
Total SHE 1,200,000.00 1,000,000.00
Total L + SHE 1,200,000.00 1,242,000.00 1,233,600.00
 84,000.00
34,000.00
24,000.00
100,000.00
242,000.00
100,000.00
500,000.00
400,000.00
1,000,000.00
1,242,000.00

ong the three temporary book-tax differences gave rise to this deferred tax asset

mong the three temporary book-tax differences gave rise to this deferred tax liability?

immediately after the acquisition.

FV
Cash 233,000.00 233,000.00
AR 300,000.00 300,000.00
 AR Allowance (16,000.00) (20,000.00) (4,000.00)
Inv 210,000.00 210,000.00
DTA 15,000.00 16,200.00 1,200.00
Land 300,000.00 330,000.00 30,000.00
Eqpt 500,000.00 500,000.00 -
Acc Dep (300,000.00) (320,000.00) (20,000.00)
Patent 22,000.00 22,000.00
1,242,000.00 1,271,200.00

AP 84,000.00 84,000.00
WP 34,000.00 34,000.00
DTL 24,000.00 33,600.00 (9,600.00)
LTD 100,000.00 100,000.00
Total Liab 242,000.00 251,600.00
CS 100,000.00
APIC 500,000.00
RE 400,000.00
Total SHE 1,000,000.00 -
Total L + SHE 1,242,000.00 251,600.00 23,600.00

Goodwill 180,400.00
Patent 22,000.00
Land 30,000.00
DTA 1,200.00
Equipment 20,000.00
DTL 9,600.00
AR, Allowance 4,000.00
Investment in Subsidiary 200,000.00
NSOLIDATION ENTRIES
CR CONSOLIDATED
233,000.00
300,000.00
4,000.00 (20,000.00)
210,000.00
16,200.00
1,000,000.00 -
200,000.00
330,000.00
500,000.00
20,000.00 (320,000.00)
180,400.00
22,000.00
1,451,600.00
 84,000.00
34,000.00
9,600.00 33,600.00
100,000.00
251,600.00
1,000,000.00
200,000.00
-
1,200,000.00
1,233,600.00 1,451,600.00
Translate Company S's balance sheet into USD immediately after the acquisition
Company S Balance Sheet
Spot Rate 1/1
Cash 300,000.00 1.1 330,000.00
AR 700,000.00 1.1 770,000.00
Inv 1,000,000.00 1.1 1,100,000.00
Eqpt 2,400,000.00 1.1 2,640,000.00
Acc Dep (400,000.00) 1.1 (440,000.00)
Total Asses 4,000,000.00 4,400,000.00

AP 660,000.00 1.1 726,000.00

LTD 1,340,000.00 1.1 1,474,000.00
Total Liab 2,000,000.00 2,200,000.00

CS 100,000.00 1.1 110,000.00

APIC 700,000.00 1.1 770,000.00
RE 1,200,000.00 1.1 1,320,000.00
2,000,000.00 2,200,000.00
Total L + SHE 4,000,000.00 4,400,000.00

Prepare the consolidation entries that would be necessary to prepare a consolidated balance sheet immediately aft

Common Stock 110,000.00

Additional Paid-in Capital 770,000.00
Retained Earnings 1,320,000.00
Investment in Subsidiary 2,200,000.00

Patent 500,000.00
Goodwill 50,000.00
Investment in Subsidiary 550,000.00
ce sheet immediately after the acquisition.