Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value 185
Required
a. Give all consolidation entries required on December 31, 20X4, to prepare consolidated finan-
cial statements.
b. Prepare a three-part consolidation worksheet as of December 31, 20X4.
LO 4-7 E4-24A Push-Down Accounting
Jefferson Company acquired all of Louis Corporation’s common shares on January 2, 20X3, for
$789,000. At the date of combination, Louis’s balance sheet appeared as follows:
Assets Liabilities
Cash & Receivables $ 34,000 Current Payables $ 25,000
Inventory 165,000 Notes Payable 100,000
Land 60,000 Stockholders’ Equity
Buildings (net) 250,000 Common Stock 200,000
Equipment (net) 320,000 Additional Capital 425,000
Retained Earnings 79,000
Total $829,000 Total $829,000
The fair values of all of Louis’s assets and liabilities were equal to their book values except for its
fixed assets. Louis’s land had a fair value of $75,000; the buildings, a fair value of $300,000; and
the equipment, a fair value of $340,000.
Jefferson Company decided to employ push-down accounting for the acquisition of Louis
Corporation. Subsequent to the combination, Louis continued to operate as a separate company.
Required
a. Record the acquisition of Louis’s stock on Jefferson’s books.
b. Present any entries that would be made on Louis’s books related to the business combination,
assuming push-down accounting is used.
c. Present, in general journal form, all consolidation entries that would appear in a consolidation
worksheet for Jefferson and its subsidiary prepared immediately following the combination.
PROBLEMS
LO 4-5 P4-25 Assignment of Differential in Worksheet
Teresa Corporation acquired all the voting shares of Sally Enterprises on January 1, 20X4. Balance
sheet amounts for the companies on the date of acquisition were as follows:
Teresa Sally
Corporation Enterprises
Cash & Receivables $ 40,000 $ 20,000
Inventory 95,000 40,000
Land 80,000 90,000
Buildings & Equipment 400,000 230,000
Investment in Sally Enterprises 290,000
Total Debits $905,000 $380,000
Accumulated Depreciation $175,000 $ 65,000
Accounts Payable 60,000 15,000
Notes Payable 100,000 50,000
Common Stock 300,000 100,000
Retained Earnings 270,000 150,000
Total Credits $905,000 $380,000
186 Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
Sally Enterprises’ buildings and equipment were estimated to have a market value of $175,000
on January 1, 20X4. All other items appeared to have market values approximating current book
values.
Required
a. Complete a consolidated balance sheet worksheet for January 1, 20X4.
b. Prepare a consolidated balance sheet in good form.
LO 4-3 P4-26 Computation of Consolidated Balances
Retail Records Inc. acquired all of Decibel Studios’ voting shares on January 1, 20X2, for $280,000.
Retail’s balance sheet immediately after the combination contained the following balances:
RETAIL RECORDS INC.
Balance Sheet
January 1, 20X2
Cash & Receivables $120,000 Accounts Payable $ 75,000
Inventory 110,000 Taxes Payable 50,000
Land 70,000 Notes Payable 300,000
Buildings & Equipment (net) 350,000 Common Stock 400,000
Investment in Decibel Stock 280,000 Retained Earnings 105,000
Total Assets $930,000 Total Liabilities & Stockholders’ Equity $930,000
Decibel’s balance sheet at acquisition contained the following balances:
DECIBEL STUDIOS
Balance Sheet
January 1, 20X2
Cash & Receivables $ 40,000 Accounts Payable $ 90,000
Inventory 180,000 Notes Payable 250,000
Buildings & Equipment (net) 350,000 Common Stock 100,000
Goodwill 30,000 Additional Paid-In Capital 200,000
Retained Earnings (40,000)
Total Assets $600,000 Total Liabilities & Stockholders’ Equity $600,000
On the date of combination, the inventory held by Decibel had a fair value of $170,000, and
its buildings and recording equipment had a fair value of $375,000. Goodwill reported by Decibel
resulted from a purchase of Sound Stage Enterprises in 20X1. Sound Stage was liquidated and its
assets and liabilities were brought onto Decibel’s books.
Required
Compute the balances to be reported in the consolidated balance sheet immediately after the acqui-
sition for:
a. Inventory.
b. Buildings and Equipment (net).
c. Investment in Decibel Stock.
d. Goodwill.
e. Common Stock.
f. Retained Earnings.
LO 4-5 P4-27 Balance Sheet Consolidation [AICPA Adapted]
Case Inc. acquired all Frey Inc.’s outstanding $25 par common stock on December 31, 20X3,
in exchange for 40,000 shares of its $25 par common stock. Case’s common stock closed at
Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value 187
$56.50 per share on a national stock exchange on December 31, 20X3. Both corporations contin-
ued to operate as separate businesses maintaining separate accounting records with years ending
December 31.
On December 31, 20X4, after year-end adjustments and the closing of nominal accounts, the
companies had condensed balance sheet accounts (below).
Additional Information
1. Case uses the equity method of accounting for its investment in Frey.
2. On December 31, 20X3, Frey’s assets and liabilities had fair values equal to the book balances
with the exception of land, which had a fair value of $550,000. Frey had no land transactions in
20X4.
3. On June 15, 20X4, Frey paid a cash dividend of $4 per share on its common stock.
4. On December 10, 20X4, Case paid a cash dividend totaling $256,000 on its common stock.
5. On December 31, 20X3, immediately before the combination, the stockholders’ equity balance
was:
Case Inc. Frey Inc.
Common Stock $2,200,000 $1,000,000
Additional Paid-In Capital 1,660,000 190,000
Retained Earnings 3,166,000 820,000
$7,026,000 $2,010,000
6. The 20X4 net income amounts according to the separate books of Case and Frey were $890,000
(exclusive of equity in Frey’s earnings) and $580,000, respectively.
Case Inc. Frey Inc.
Assets
Cash $ 825,000 $ 330,000
Accounts & Other Receivables 2,140,000 835,000
Inventories 2,310,000 1,045,000
Land 650,000 300,000
Depreciable Assets (net) 4,575,000 1,980,000
Investment in Frey Inc. 2,680,000
Long-Term Investments & Other Assets 865,000 385,000
Total Assets $14,045,000 $4,875,000
Liabilities & Stockholders’ Equity
Accounts Payable & Other Current Liabilities $ 2,465,000 $1,145,000
Long-Term Debt 1,900,000 1,300,000
Common Stock, $25 Par Value 3,200,000 1,000,000
Additional Paid-In Capital 2,100,000 190,000
Retained Earnings 4,380,000 1,240,000
Total Liabilities & Stockholders’ Equity $14,045,000 $4,875,000
Required
Prepare a consolidated balance sheet worksheet for Case and its subsidiary, Frey, for December 31,
20X4. A formal consolidated balance sheet is not required.
188 Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
LO 4-5 P4-28 Consolidated Balance Sheet
Thompson Company spent $240,000 to acquire all of Lake Corporation’s stock on January 1, 20X2.
The balance sheets of the two companies on December 31, 20X3, showed the following amounts:
Thompson Lake
Company Corporation
Cash $ 30,000 $ 20,000
Accounts Receivable 100,000 40,000
Land 60,000 50,000
Buildings & Equipment 500,000 350,000
Less: Accumulated Depreciation (230,000) (75,000)
Investment in Lake Corporation 252,000
$712,000 $385,000
Accounts Payable $ 80,000 $ 10,000
Taxes Payable 40,000 70,000
Notes Payable 100,000 85,000
Common Stock 200,000 100,000
Retained Earnings 292,000 120,000
$712,000 $385,000
Lake reported retained earnings of $100,000 at the date of acquisition. The difference between
the acquisition price and underlying book value is assigned to buildings and equipment with a
remaining economic life of 10 years from the date of acquisition. Assume Lake’s accumulated
depreciation on the acquisition date was $25,000.
Required
a. Give the appropriate consolidation entry or entries needed to prepare a consolidated balance
sheet as of December 31, 20X3.
b. Prepare a consolidated balance sheet worksheet as of December 31, 20X3.
LO 4-5, 4-6 P4-29 Comprehensive Problem: Consolidation in Subsequent Period
Thompson Company spent $240,000 to acquire all of Lake Corporation’s stock on January 1,
20X2. On December 31, 20X4, the trial balances of the two companies were as follows:
Thompson Company Lake Corporation
Item Debit Credit Debit Credit
Cash $ 74,000 $ 42,000
Accounts Receivable 130,000 53,000
Land 60,000 50,000
Buildings & Equipment 500,000 350,000
Investment in Lake Corporation Stock 268,000
Cost of Services Provided 470,000 130,000
Depreciation Expense 35,000 18,000
Other Expenses 57,000 60,000
Dividends Declared 30,000 12,000
Accumulated Depreciation $ 265,000 $ 93,000
Accounts Payable 71,000 17,000
Taxes Payable 58,000 60,000
Notes Payable 100,000 85,000
Common Stock 200,000 100,000
Retained Earnings 292,000 120,000
Service Revenue 610,000 240,000
Income from Subsidiary 28,000
$1,624,000 $1,624,000 $715,000 $715,000
Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value 189
Lake Corporation reported retained earnings of $100,000 at the date of acquisition. The difference
between the acquisition price and underlying book value is assigned to buildings and equipment
with a remaining economic life of 10 years from the date of acquisition. Lake’s accumulated
depreciation on the acquisition date was $25,000. At December 31, 20X4, Lake owed Thompson
$2,500.
Required
a. Give all journal entries recorded by Thompson with regard to its investment in Lake during
20X4.
b. Give all consolidation entries required on December 31, 20X4, to prepare consolidated finan-
cial statements.
c. Prepare a three-part consolidation worksheet as of December 31, 20X4.
LO 4-3, 4-4 P4-30 Acquisition at Other than Fair Value of Net Assets
Mason Corporation acquired 100 percent ownership of Best Company on February 12, 20X9.
At the date of acquisition, Best Company reported assets and liabilities with book values of
$420,000 and $165,000, respectively, common stock outstanding of $80,000, and retained earn-
ings of $175,000. The book values and fair values of Best’s assets and liabilities were identical
except for land, which had increased in value by $20,000, and inventories, which had decreased
by $7,000.
Required
Give the consolidation entries required to prepare a consolidated balance sheet immediately after
the business combination assuming Mason acquired its ownership of Best for:
a. $280,000.
b. $251,000.
LO 4-5, 4-6 P4-31 Intercorporate Receivables and Payables
Kim Corporation acquired 100 percent of Normal Company’s outstanding shares on January 1,
20X7. Balance sheet data for the two companies immediately after the purchase follow:
Kim Normal
Corporation Company
Cash $ 70,000 $ 35,000
Accounts Receivable 90,000 65,000
Inventory 84,000 80,000
Buildings & Equipment 400,000 300,000
Less: Accumulated Depreciation (160,000) (75,000)
Investment in Normal Company Stock 305,000
Investment in Normal Company Bonds 50,000
Total Assets $839,000 $405,000
Accounts Payable $ 50,000 $ 20,000
Bonds Payable 200,000 100,000
Common Stock 300,000 150,000
Capital in Excess of Par 140,000
Retained Earnings 289,000 (5,000)
Total Liabilities & Equities $839,000 $405,000
As indicated in the parent company balance sheet, Kim purchased $50,000 of Normal’s bonds
from the subsidiary at par value immediately after it acquired the stock. An analysis of inter-
company receivables and payables also indicates that the subsidiary owes the parent $10,000.
On the date of combination, the book values and fair values of Normal’s assets and liabilities
were the same.
190 Chapter 4 Consolidation of Wholly Owned Subsidiaries Acquired at More than Book Value
Required
a. Give all consolidation entries needed to prepare a consolidated balance sheet for January 1,
20X7.
b. Complete a consolidated balance sheet worksheet.
c. Prepare a consolidated balance sheet in good form.
LO 4-5 P4-32 Balance Sheet Consolidation
On January 2, 20X8, Primary Corporation acquired 100 percent of Street Company’s outstanding
common stock. In exchange for Street’s stock, Primary issued bonds payable with a par and fair
value of $650,000 directly to the selling stockholders of Street. The two companies continued to
operate as separate entities subsequent to combination.
Immediately prior to the combination, the book values and fair values of the companies’ assets
and liabilities were as follows:
Primary Corporation Street Company
Book Value Fair Value Book Value Fair Value
Cash $ 12,000 $ 12,000 $ 9,000 $ 9,000
Receivables 41,000 39,000 31,000 30,000
Allowance for Bad Debts (2,000) (1,000)
Inventory 86,000 89,000 68,000 72,000
Land 55,000 200,000 50,000 70,000
Buildings & Equipment 960,000 650,000 670,000 500,000
Accumulated Depreciation (411,000) (220,000)
Patent 40,000
Total Assets $741,000 $990,000 $607,000 $721,000
Current Payables $ 38,000 $ 38,000 $ 29,000 $ 29,000
Bonds Payable 200,000 210,000 100,000 90,000
Common Stock 300,000 200,000
Additional Paid-In Capital 100,000 130,000
Retained Earnings 103,000 148,000
Total Liabilities & Equity $741,000 $607,000
At the date of combination, Street owed Primary $6,000 plus accrued interest of $500 on a
short-term note. Both companies have properly recorded these amounts.
Required
a. Record the business combination on the books of Primary Corporation.
b. Present in general journal form all consolidation entries needed in a worksheet to prepare a
consolidated balance sheet immediately following the business combination on January 2,
20X8.
c. Prepare and complete a consolidated balance sheet worksheet as of January 2, 20X8, immedi-
ately following the business combination.
d. Present a consolidated balance sheet for Primary and its subsidiary as of January 2, 20X8.
LO 4-5 P4-33 Consolidation Worksheet at End of First Year of Ownership
Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for
$128,000. At that date, the fair value of Roller’s buildings and equipment was $20,000 more
than the book value. Buildings and equipment are depreciated on a 10-year basis. Although
goodwill is not amortized, Mill’s management concluded at December 31, 20X8, that goodwill
involved in its acquisition of Roller shares had been impaired and the correct carrying value
was $2,500.
