ACCT 4381 Midterm 2 November 2013 Examination

Consolidated Goodwill at Acquisition

Acquirer
Consideration
Number of Years

Parent

70%
14,000,000
5

2,010

2,014

Carrying Value OfSubsidiarys Identifiable Net Assets

(Based On Acquisition Date Shareholders Equity)Common Stock

10,000,000
8,000,000
18,000,000

Retained Earnings

Amort Years

Fair Value Changes:

Decrease On Inventories
Decrease On Plant
Patent
Increase On Liabilities

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Fair Value Of Subsidiarys Identifiable Net Assets

Investment Cost (Consideration Transferred)

Non-Controlling Interest

70.0%
30.0%

Subtotal
Fair Value OfSubsidiarys Identifiable Net Assets
Goodwill

1.

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NCI
Based On
Identifiable Assets
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1
8
10
9

5 marks

(5 marks) Investment Eliminationentry that would be required to eliminate the Parent Companys Investment In Subsidiary would be as follows:

Common Stock - No Par

10,000,000

Retained Earnings - Subsidiarys Opening

8,000,000

Patent

2,000,000

Goodwill

2,500,000

Liabilities (Non-current)

750,000

Investment InSubsidiary

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Inventories

####### ####################

Plant and Equipment (Net)

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Non-Controlling Interest

######### ##################
23,250,000

23,250,000

2. (30 marks) Working Paper Journal entries

Step B - Amortization Of The Fair Value Change On Plant And Equipment

8 years
5
Amortization Expenses (2014)
# ################
Retained Earnings - Subsidiarys Opening
# [(5)($375,000)]
################

Plant and Equipment (Net)

1,875,000
375,000
1,500,000

Step B - Amortization Of Patent The fair value decrease will be amortized as follows:
Amortization Expenses (2014)
Retained Earnings - Subsidiarys Opening [(5)($200,000)]
Patent [(6)($200,000)]

10
1
4
5

years
200,000
800,000

(22,222)
2,133,333
1,000,000

2,111,111

Step B - Amortization Of The Fair Value Change On The Liabilities The fair value increase on the long-term liabilities will be amortized as follows:

Long-Term Liabilities
Other Expenses (2014)
Retained Earnings - Subsidiarys Opening

9
5
1
4

years
416,667
83,333
333,333

Step B - Fair Value Inventories Realization The entry to record the realization of the fair value decrease in inventories is as follows:

250,000

Inventories
Retained Earnings - Subsidiarys Opening

250,000

Step B amortization of goodwill impairment happened 2011 and

2014 is as follows:

400,000
(100,000)

Retained earnings
Other expenses (2014)

300,000

Goodwill
Step B - Intercompany Dividends The entry to eliminate the
intercompany Dividends Declared is as follows:
Total Revenues
Non-Controlling Interest (Balance Sheet)

700,000
300,000
1,000,000

Dividends Declared

Step B - Intercompany Merchandise Sales The entry to eliminate the intercompany merchandise sales is as follows:

900,000

Sales

900,000

Cost Of Goods Sold

Step B - Unrealized Upstream Inventory Profits Two entries are required to eliminate the unrealized intercompany profits in both the opening inventories and the closing inventories
The unrealized opening inventory profits equal $55,000 [(55%)($100,000)] while the unrealized inventory profits in the closing inventories equal $275,000 [(55%)(1/2)($1,000,000)]. The entries are as follows:
Retained Earnings - Subsidiarys Opening

55,000
55,000

Cost of Goods Sold

137,500

Cost of Goods Sold

Inventories

137,500

Step B - Unrealized downstream Inventory Profits Two entries are required to eliminate the unrealized intercompany profits in both the opening inventories and the closing inventories. The unrealized
opening inventory profits equal $0 [(30%)($0)] while the unrealized inventory profits in the closing inventories equal $45,000 [(30%)($150,000)]. The entries are as follows:
Retained Earnings - Subsidiarys Opening

30,000
30,000

Cost of Goods Sold

45,000

Cost of Goods Sold

45,000

Inventories

Step B - Elimination Of Patent Sale The upstream gain on the January 1, 2011 sale of the Patent is $1,000,000 ($1,000,000 - $0).
This gain was recorded in 2011 and the required entry for 2014 is as follows:

2,000,000

Retained earnings

1,333,333

Patent

2,000,000

1,111,111

666,667
222,222

222,222

888,889

Patent

Retained earnings
Patent Amort
Step B - Intercompany Receivables and Payables The entry to
eliminate the intercompany accounts:

550,000

Accounts Payable

550,000

Accounts receivable

Step B - Intercompany Management fees The entry to eliminate the intercompany accounts:

150,000

Total revenues

150,000

Other expenses

Step B - Elimination Of Equipment Sale The downstream gain on the January 1, 2011 sale of the Equipment is $15,000 ($95,000 $30,000-75,000). This gain was recorded in 2014 and the required entry for 2014 is as follows:

50,000

Gain on sale (2014)

Equipment

50,000
10,000

(Non-current assets)

Dep exp (Amort expenses)

10,000

Accum Dep (Non-current assets)

4. Consolidated
Income
marks)
The consolidated
Income Statement
forStatement
the Parent (20
Company
and its
subsidiary, the Subsidiary Company, is as follows:
Parent Company and Subsidiary
Consolidated Income Statement
For The Year Ending December 31, 2014

Parent
Total Revenues
Cost Of Goods Sold
Amortization
Other Expenses
Total Expenses
Consolidated Net Income Of The Enterprise

Sub

JE

15,000,000
8,000,000
1,000,000
2,000,000
11,000,000

5,000,000
2,000,000
400,000
600,000
3,000,000

(1,750,000)
(802,500)
(407,222)
(116,667)
(1,326,389)

4,000,000

2,000,000

(423,611)

Non-Controlling Interest (See Note)

Controlling Interest In Consolidated Net Income

Note The Non-Controlling Interest would be calculated as follows:

Subsidiarys 2014 Net Income

2,000,000
375,000
(83,333)
(200,000)
(222,222)
55,000
(137,500)
100,000
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Amortization Of Fair Value Change On Equipment

Amortization Of Fair Value Change On Liabilities
Amortization of Patent
Amortization of Patent
Upstream Profits In Opening Inventories
Upstream Profits In Closing Inventories
Goodwill current year
Adjusted Net Income
Non-Controlling Percent

30%
566,083

Non-Controlling Interest
5. Opening Retained Earnings Subsidiary Companys January
1, 2014 (15 marks) is as follows:
Retained Earnings - Subsidiarys Opening
Balance At Acquisition
Balance Since Acquisition

16,000,000
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Adjustments For Fair Value Realizations:

Inventories
Amortization On Equipment [(5)($50,000)]
Amortization On Liabilities [(5)($20,000)]

250,000
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Adjustments For Unrealized Upstream Profits

Opening Inventories
closing inventories
Goodwill impairment
Patent
Patent
Amortization patent

(55,000)
(30,000)
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666,667
###################

(2,133,333)

10 marks

Total
18,250,000
9,197,500
992,778
2,483,333
12,673,611
5,576,389
566,083
5,010,306

10 marks

Adjusted Balance Since Acquisition

30%

Non-Controlling Interest
To Consolidated Retained Earnings - controling interest

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6. (10 marks)
Non-Controlling
Interest
The Non-Controlling
Interest
that would appear
on the consolidated
Balance Sheet as at December 31, 2011 of the Parent Company and

######### #########
566,083
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NEarnings
Retained earnings
dividends
December 31, 2014 Non-Controlling Interest

7. SFP 15 marks

Adjusting
Parent

CA
Non Current
Goodwill
total assets
CL
Non Current
NCI
Com
RE Parent
RE Sub
revenue
cogs
amort
other
divid

Sub

DR

35,000,000
70,500,000

6,000,000
26,000,000

105,500,000

32,000,000

8,000,000
15,000,000

2,000,000
3,000,000

20,000,000
60,000,000
15,000,000
(8,000,000)
(1,000,000)
(2,000,000)
(1,500,000)
105,500,000
-

10,000,000
16,000,000
5,000,000
(2,000,000)
(400,000)
(600,000)
(1,000,000)
32,000,000
-

CR
250,000
4,773,889
2,500,000
7,523,889

982,500
20,050,000
300,000
21,332,500

550,000
750,000
300,000
10,000,000

416,667
6,000,000

11,618,333
1,750,000
182,500
200,000
33,333
25,384,167
32,908,056

2,416,667
985,000
607,222
150,000
1,000,000
11,575,556
32,908,056
-

Total
40,267,500
81,223,889
2,200,000
123,691,389
9,450,000
17,666,667
5,700,000
20,000,000
60,000,000
6,798,333
18,250,000
(9,197,500)
(992,778)
(2,483,333)
(1,500,000)
123,691,389
-

NCI Adj
40,267,500
81,223,889
2,200,000
123,691,389

2,605,583
4,758,833
(6,798,333)
(566,083)

(0)

9,450,000
17,666,667
8,305,583
20,000,000
64,758,833
5,010,306

(1,500,000)
123,691,389
-

40,267,500
83,423,889
123,691,389
9,450,000
17,666,667
8,305,583
20,000,000
68,269,139
-

123,691,389
-