Parent Non Entire Share Controlling Value Share Purchase price and implied value 585000 195000 780000 Less Book value of equity acquired 450000 150000 600000 Difference ID: 558419
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Slide1Slide2
Computation and Allocation of Difference Schedule
Parent Non- Entire Share Controlling Value SharePurchase price and implied value $585,000 195,000 780,000 *Less: Book value of equity acquired 450,000 150,000 600,000Difference (IV&BV) 135,000 45,000 180,000Equipment ($705,000 – $525,000) (135,000) (45,000) (180,000)Balance - 0 - - 0 - - 0 -
Part A
Equipment
180,000
Difference between Implied and Book
Value
180,000
Depreciation Expense ($180,000/10)
18,000
Accumulated Depreciation
18,000Slide3
Part B
Allocated to Equipment = 180000 ÷10/15 = 270,000Allocated to Accumulated Depreciation = 270,000 * 5/15= 90,000 Equipment 270,000 Accumulated Depreciation 90,000 Difference (IV&BV) 180,000 Depreciation Expense ($180,000/10) 18,000 Accumulated Depreciation 18,000 Slide4Slide5
Part B Computation and Allocation of Difference Schedule
Parent Non- Entire Share Controlling Value SharePurchase price and implied value $525,000 131,250 656,250 *Less: Book value of equity acquired 480,000 120,000 600,000Difference between implied and book value 45,000 11,250 56,250Inventory (16,000) (4,000) (20,000)Marketable Securities (20,000) (5,000) (25,000)Plant and Equipment (24,000) (6,000) (
30,000)
Balance (excess of FV over implied value) (15,000) (3,750) (18,750)
Gain
15,000Increase Noncontrolling interest to fair value of assets 3,750Total allocated bargain 18,750Balance -0- -0- -0-
Exercise 5-3
Part A Investment in Saddler Corporation 525,000
Cash
525,000 Slide6Slide7
Computation and Allocation of Difference Schedule
Parent Non- Entire Share Controlling Value SharePurchase price and implied value $260,000 65,000 325,000 *Less: Book value of equity acquired 270,000 67,500 337,500Difference between implied and book value (10,000) (2,500) (12,500)Inventory (4,000) (1,000) (5,000)Current Assets (4,000) (1,000) (5,000)Equipment (net) (40,000) (10,000) (50,000)
Balance (excess of FV over implied value) (58,000) (14,500) (72,500)
Gain
58,000
Increase Noncontrolling interest to fair value of assets 14,500Total allocated bargain 72,500Balance -0- -0- -0-Slide8
Part B
(1) Common Stock
207,000
Beginning Retained
Earnings- 130,500 Difference (IV&BV) 12,500 Investment in Salem Company 260,000 Noncontrolling interest
65,000
(
2) Difference
(IV&BV)
12,500
Inventory
5,000
Current
Assets 5,000
Equipment
(net) 50,000
Gain
on acquisition
58,000
Noncontrolling
interest 14,500
Slide9Slide10
Computation and Allocation of Difference Schedule
Parent Non- Entire Share Controlling Value SharePurchase price and implied value $2,000,000 500,000 2,500,000 *Less: Book value of equity acquired 1,760,000 440,000 2,200,000Difference between (IV&BV) 240,000 60,000 300,000Land ($100,000 – $ 80,000) (16,000) (4,000) (20,000)
Premium on Bonds
Payable
a
31,941 7,985 39,926Balance 255,941 63,985 319,926Goodwill (255,941) (63,985) (
319,926)
Balance
-
0- -0- -0-
a
Present
Value on 1/1/20
10
of 10% Bonds Payable
Discounted at 8% over 5 periods
Principal ($500,000
*
0.68058
)
$340,290
Interest ($50,000
*
3.99271)
199,636
Fair value of bond
$539,926
Face value of
bond
500,000
Bond premium
39,926Slide11
Land
20,000Goodwill 319,926 Unamortized Premium on Bonds Payable 39,926 Difference between (IV&BV) 300,000 Unamortized Premium on Bonds Payable 6,806 Interest Expense ($50,000 – ($539,926 * 0.08)) 6,806 a Effective Interest (($539,926 * 0.08) $(43,194) Nominal Interest (0.10 * $500,000) 50,000 Difference $6806 Slide12
Exercise 5-10Slide13
Part A
Computation and Allocation of Difference Schedule Parent Non- Entire Share Controlling Value SharePurchase price and implied value $3,500,000 388,889 3,888,889 *Less: Book value of equity acquired 3,150,000 350,000 3,500,000Difference between (IV&BV) 350,000 38,889 388,889Land ($200,000 - $ 120,000) (72,000) (8,000) (80,000)
Premium on Bonds Payable
a
56,867 6,319 63,186Balance 334,867 37,208 372,075Goodwill (334,867) (37,208) (372,075)Balance -0- -0- -0-
a
Present Value on 1/2/2007 of 9% Bonds Payable
Discounted at 6% for 5 periods
Principal ($500,000
*0.74726)
$373,630
Interest ($45,000
*
4.21236)
189,556
Fair value of
bond
$563,186
Face value of bond
500,000
Premium on bond payable
63,186Slide14
Land
80,000 Goodwill 372,075 Unamortized Premium on Bonds Payable 63,186 Difference between(IV&BV) 388,889 Unamortized Premium on Bonds Payable 11,209 Interest Expense 11,209a a Effective Interest (0.06 *$563,186) $(33,791) Nominal Interest (0.09 * $500,000) 45,000 Difference 11,209 Slide15
Exercise 5-11Slide16
Computation and Allocation of Difference Schedule
Parent Non- Entire Share Controlling Value SharePurchase price and implied value $2,276,000 569,000 2,845,000 *Less: Book value of equity acquired 2,000,000 500,000 2,500,000Difference (IV&BV) 276,000 69,000 345,000Inventory (36,000) (9,000) (45,000)Equipment (40,000) (10,000) (50,000)
Balance
200,000
50,000 250,000
Goodwill (200,000) (50,000) (250,000)Balance -0- -0- -0-Part 1 – Cost Method2010
(1) Dividend Income 16,000
Dividends Declared (0.80
×
$20,000
) 16,000
To eliminate intercompany dividends Slide17
2) Beginning Retained
Earnings 700,000 Capital Stock 1,800,000 Difference between Implied and Book Value 345,000 Investment in Sand Company 2,276,000 Noncontrolling interest 569,000 (3) Cost of Goods Sold (Beginning Inventory) 45,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV) 345,000 (4) Depreciation Expense ($50,000/8) 6,250 Equipment (net) 6,250Slide18
2011
(1) Investment in Sand Company ($80,000 ×0.80) 64,000 Beginning Retained Earnings 64,000 To establish reciprocity/convert to equity method as of 1/1/2008 (2) Dividend Income ($30,000 * 0.80) 24,000 Dividends Declared 24,000 To eliminate intercompany dividends(3) Beginning Retained Earnings ($700,000 + $100,000 – $20,000) 780,000 Capital Stock 1,800,000 Difference between Implied and Book Value 345,000 Investment in Sand Company ($2,276,000 + $64,000) 2,340,000 NCI ($569,000 + 16000) 585,000 Slide19
(
4) Beginning Retained Earnings-Piper Company 36,000 Noncontrolling Interest 9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between Implied and Book Value 345,000 (5) Beginning Retained Earnings-Piper Company 5,000 Noncontrolling Interest 1,250 Depreciation Expense ($50,000/8) 6,250 Equipment (net) 12,500 Slide20
2012
(1) Investment in Sand Company ($200,000 *0.80) 160,000 Beginning Retained Earnings-Piper Company 160,000 To establish reciprocity/convert to equity method as of 1/1/2009 (2) Dividend Income ($15,000 * 0.80) 12,000 Dividends Declared 12,000 To eliminate intercompany dividends (3) Beginning Retained Earnings($780,000 + $150,000 – $30,000) 900,000 Common Stock- Sand Company 1,800,000 Difference between Implied and Book Value 345,000 Investment ($2,276,000 + $160,000) 2,436,000 NCI ($569,000 + ($900,000 – $700,000) x 0.20) 609,000 To eliminate investment account and create noncontrolling interest accountSlide21
(
4) Beginning Retained Earnings-Piper Company 36,000 Noncontrolling Interest 9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV) 345,000 (5) Beginning Retained Earnings-Piper Company 10,000 Noncontrolling Interest 2,500 Depreciation Expense ($50,000/8) 6,250 Equipment (net) 18,750Slide22Slide23
Computation and Allocation of Difference Schedule
Parent Non- Entire Share Controlling Value SharePurchase price and implied value $3,750,000 416,667 4,166,667 *Less: Book value of equity acquired 3,600,000 400,000 4,000,000Difference between (IV&BV) 150,000 16,667 166,667Inventory (90,000) (10,000) (100,000)Land (360,000) (40,000) (
400,000)
Balance (excess of FV over implied value) (300,000) (33,333) (333,333)
Gain
300,000Increase NCI to fair value of assets 33,333Total allocated bargain 333,333Balance -0- -0- -0-
(1) Investment in Saxton Corporation
225,000
Beginning
Retained Earnings-Palm Inc. 225,000
To
establish reciprocity/convert to equity (0.90
*($
1,250,000 – $1,000,000))Slide24
(2) Beginning Retained Earnings-Saxton Co.
1/1/2012 1,250,000 Capital Stock- Saxton Co. 3,000,000 Difference between Implied and Book Value 166,667 Investment ($3,750,000 + $225,000) 3,975,000 Noncontrolling Interest 441,667To eliminate the investment amount and create noncontrolling interest account (3) Beginning Retained Earnings-Palm Inc. 90,000 Noncontrolling Interest 10,000 Land 400,000 Difference between (IV&BV) 166,667 Gain on Acquisition 300,000 Noncontrolling Interest 33,333 To allocate and depreciate the difference between implied and book value