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29.

(45 Minutes) (Consolidated totals and worksheet two years after


acquisition. Parent uses initial value method. Includes question
comparing initial value and equity methods).
a. 12/31/2013
Sales
Cost of goods sold
Interest expense
Depreciation expense
Amortization expense
Dividend income
Net Income

Pinnacle
(7,000,000)
4,650,000
255,000
585,000
(50,000)
(1,560,000)

(190,000)

Retained earnings 1/1/13


Net income
Dividends paid
Retained earnings 12/31/13

(5,000,000)
(1,560,000)
560,000
(6,000,000)

(1,350,000)
(190,000)
50,000
(1,490,000)

Cash
Accounts receivable
Inventory
Investment in Strata

433,000
1,210,000
1,235,000
3,200,000

165,000
200,000
1,500,000

Buildings (net)
Licensing agreements
Goodwill
Total Assets

5,572,000

2,040,000
1,800,000

Accounts payable
Long-term debt
Common stock - Pinnacle
Common stock - Strata
Retained earnings 12/31/13
Total Liabilities and OE

350,000
12,000,000
(300,000)
(2,700,000)
(3,000,000)
(6,000,000)
(12,000,000)

Strata
(3,000,000)
1,700,000
160,000
350,000
600,000

Adjustments and Eliminations

30,000

50,000

S 1,350,000

20,000

*C

240,000

50,000

85,000

*C

240,000

S 2,850,000
A 590,000

A
E
A

270,000
20,000
400,000

E
A

(715,000)
(2,000,000)

85,000

(1,500,000)
(1,490,000)
(5,705,000)

S 1,500,000

30,000
80,000

5,705,000

3,945,000

3,945,000

b. Subsidiary income (190,000 10,000) ...................................... $180,000


1/1/13 retained earnings (5,000,000 + 240,000) ..................... $5,240,000
Investment in Strata:
Initial value basis ............................................................. $3,200,000
Conversion to equity as of 1/1/13
$240,000
Income for 2013
180,000
Dividends for 2013
(50,000)
370,000
Equity method balance 12/31/13...................................... $3,570,000
c. The internal method choice for investment accounting has no effect on
consolidated financial statements.

Consolidated
(10,000,000)
6,350,000
415,000
965,000
580,000
0
(1,690,000)
(5,240,000)
(1,690,000)
560,000
(6,370,000)
598,000
1,325,000
2,735,000
0

7,852,000
1,740,000
750,000
15,000,000
(930,000)
(4,700,000)
(3,000,000)
0
(6,370,000)
(15,000,000)

30. (30 Minutes) (Determine consolidated accounts and consolidation entries


five years after purchase. Parent applies equity method.)
a. Fair value allocation and annual amortization

Land
..........................................
Buildings .........................................
Equipment .......................................
Customer List .................................
Total
..........................................

Allocation
$20,000
(30,000)
60,000
100,000

Annual excess
Life amortizations
10 yrs.
5 yrs.
20 yrs.

$(3,000)
12,000
5,000
$14,000

CONSOLIDATED TOTALS
Revenues = $850,000 (add the two book values)
Cost of goods sold = $380,000 (the accounts of both companies are
added together)
Depreciation expense = $179,000 (the accounts are added and include
the excess depreciation adjustment of $9,000)
Amortization expense = $5,000 (current amortization for customer list
recognized in acquisition)
Buildings (net) = $625,000 (add the two book values less the
acquisition-date fair value allocation [a $30,000 reduction] after
removing 5 years of amortization totaling $15,000)
Equipment (net) = $450,000 (add the two book values. The
acquisition-date fair value allocation is completely amortized at end
of current year)
Customer list = $75,000 ($100,000 original allocation less $25,000 [5
years of amortization])
Common stock = $300,000 (parent company balance only)
Additional paid-in capital = $50,000 (parent company balance only)
b. The method used by the parent is only important in determining the
parent's separate account balances (which are given here or are not
needed) or consolidation worksheet entries (which are not required in
a.)
30. (continued)
c. Consolidation entry S
Common Stock (Hill) ...........................
Additional Paid-in Capital (Hill) ..........
Retained Earnings 1/1 .........................

40,000
160,000
600,000

Investment in Hill ...........................


800,000
(To eliminate beginning stockholders' equity of subsidiary)

Consolidation entry A
Land ......................................................
20,000
Equipment (net) ...................................
12,000
Customer List (net) ..............................
80,000
Buildings (net) ................................
18,000
Investment in Hill ...........................
94,000
(To enter unamortized allocation balances as of beginning of
current year)
Consolidation entry I
Investment Income ..............................
86,000
Investment in Hill ...........................
86,000
(To remove equity income recognized during yearequity
method accrual of $100,000 [based on subsidiary's income]
less amortization of $14,000 for the year)
Consolidation entry D
Investment in Hill .................................
40,000
Dividends Paid ...............................
(To remove intra-entity dividend payments)

40,000

Consolidation entry E
Amortization Expense ..........................
5,000
Depreciation Expense ..........................
9,000
Buildings ..............................................
3,000
Equipment........................................
12,000
Customer List ..................................
5,000
(To recognize excess acquisition-date fair-value amortizations
for
the period)
31.

(30 Minutes) (Determine parent company and consolidated account


balances for a bargain purchase combination. Parent applies equity
method)

a.

Acquisition-date fair value allocation and annual excess amortization


Consideration transferred ............
Santiago book value (given) ..........
Technology undervaluation (6 yr. life)
Acquisition fair value of net assets
Gain on bargain purchase ..............

$1,090,000
$950,000
240,000
1,190,000
$(100,000)

Santiago income
$(200,000)
Technology amortization ................
Equity earnings in Santiago ...........

40,000
$(160,000)

Fair value of net assets at acquisition-date


Equity earnings from Santiago ......
Dividends received .........................
Investment in Santiago 12/31/13 ....

$1,190,000
160,000
(50,000)
$1,300,000

Because a bargain purchase occurred, Santiagos net asset fair value


replaces the fair value of the consideration transferred as the initial value
assigned to the subsidiary on Petersons books.
31 b.
Peterson and Subsidiary
Consolidated Worksheet
For the Year Ended December 31, 2013
Income Statement
Revenues
Cost of goods sold
Gain on bargain purchase
Depreciation and
amortization
Equity earnings in Santiago
Net income
Statement of Retained
Earnings
Retained earnings, 1/1
Net income (above)
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

Peterson
(535,000)
170,000
(100,000)

Santiago
(495,000)
155,000
-0-

Adj. &

125,000
(160,000)
(500,000)

140,000
-0(200,000)

(E) 40,000
(I) 160,000

305,000
-0(500,000)

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

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

(S) 650,000

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

190,000
1,300,000

300,000
-0-

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

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

(165,000)
(535,000)
(1,800,000)
(2,500,000)

(100,000)
(300,000)
(800,000)
(1,200,000)

Elim.

(D) 50,000

Consolidated
(1,030,000)
325,000
(100,000)

490,000
(D) 50,000

(A) 240,000

(I) 160,000
(S) 950,000
(A) 240,000
(E) 40,000

(S) 300,000
1,440,000

1,440,000

-0300,000
900,000
910,000
2,600,000
(265,000)
(535,000)
(1,800,000)
(2,600,000)

32. (35 minutes) (Contingent performance obligation and worksheet


adjustments for equity and initial value methods.)
a. 1/1/12 Investment in Wolfpack, Inc.
500,000
Contingent Performance Obligation
35,000
Cash
465,000
b.12/31/12 Loss from Increase in Contingent Performance Obligation 5,000
Contingent Performance Obligation
5,000
12/31/13 Loss from Increase in Contingent Performance Obligation 10,000
Contingent Performance Obligation
10,000
12/31/13 Contingent Performance Obligation
Cash

50,000
50,000

c. Equity Method Worksheet Adjustments


Common Stock- Wolfpack
Retained Earnings-Wolfpack
Investment in Wolfpack

200,000
180,000
380,000

Royalty Agreements
Goodwill
Investment in Wolfpack

90,000
60,000

Equity Earnings of Wolfpack


Investment in Wolfpack

65,000

Investment in Wolfpack
Dividends Paid

35,000

Amortization Expense
Royalty Agreements

10,000

150,000

65,000

35,000

10,000

Investment account after worksheet adjustments =


(560,000 380,000 150,000 65,000 + 35,000) = 0
d. Initial Value Method
Investment in Wolfpack
Retained Earnings-Branson
Common Stock- Wolfpack
Retained Earnings-Wolfpack
Investment in Wolfpack

30,000
30,000
200,000
180,000
380,000**

32. (continued)
Royalty Agreements
Goodwill
Investment in Wolfpack

90,000
60,000

Dividend Income
Dividends Paid

35,000

Amortization Expense
Royalty Agreements

10,000

150,000

35,000

10,000