Student Name:

Class:
Problem 03-25
Part a. Mitchell Company and Andrews Company
- Purchase price allocation and annual amortization
Purchase price
Book value of subsidiary
Excess cost over book value Annual
Allocation to specific accounts Life Excess
based on fair market value: (years) Amortizations
Buildings and equipment
Trademark
Total
-Conversion to equity method for years prior to 2004
Andrews' retained earnings, 1/1/07
Retained earnings at date of purchase
Increase since date of purchase
Excess amortization expenses
Conversion to equity method for years
prior to 2007
Student Name:
Class:
Problem 03-25
Part a. Consolidated Worksheet
MITCHELL COMPANY AND CONSOLIDATED SUBSIDIARY
Consolidation Worksheet
For Year Ending December 31, 2007
Mitchell Andrews Consolidation Entries Consolidated
Accounts Company Company Debit Credit Totals
Income Statement
Revenues (610,000) $ (370,000) $
Cost of goods sold 270,000 140,000
Depreciation expense 115,000 80,000
Amortization expense
Dividend income (5,000) -
Net income (230,000) $ (150,000) $
Statement of Retained Earnings
Retained earnings, 1/1/07 (880,000) $
(490,000) $
Net income (230,000) (150,000)
Dividends paid 90,000 5,000
Retained earnings, 12/31/07 (1,020,000) $ (635,000) $
Balance Sheet
Cash 110,000 $ 15,000 $
Receivables 380,000 220,000
Inventory 560,000 280,000
Investment in Andrews Co. 470,000 -
Land 460,000 340,000
Buildings and equipment 920,000 380,000
Trademark - -
Total assets 2,900,000 $ 1,235,000 $
Liabilities (780,000) (470,000)
Preferred stock (300,000) -
Common stock (500,000) (100,000)
Additional paid-in capital (300,000) (30,000)
Retained earnings, 12/31/07 (1,020,000) (635,000)
Total liabilities and equity (2,900,000) $ (1,235,000) $
Parentheses indicate a credit balance.
Student Name:
Class:
Problem 03-25
Part b. Equity method - What account balances would be altered
on Mitchell's financial statements?
New
Account Balance
Part c. Equity method - What changes would be necessary in the
consolidation entries in the December 31, 2007
Consolidation Worksheet?
Part d. Equity method - What changes would be created in the
consolidation figures to be reported by this combination.
Given Data P03-25:
Andrews Company outstanding common stock 100%
acquired by Mitchell Company
Mitchell Company's $30 par common stock issued 9,000
for acquisition - number of shares
Fair market value of Mitchell stock - per share 50 $
Fees paid by Lee for arranging acquisition 20,000
Andrews' reported retained earnings at date of purchase 230,000
Book value for Andrews at date of purchase 360,000
Andrews' buildings and equipment undervalued by 60,000
Remaining life of Andrews' buildings and equipment - years 6
Fair value of Andrews' trademark 50,000 $
Remaining life of Andrews' trademark - years 10
Mitchell Andrews
Company Company
12/31/2007 12/31/2007
Revenues (610,000) $ (370,000) $
Cost of goods sold 270,000 140,000
Depreciation expense 115,000 80,000
Dividend income (5,000) -
Net income (230,000) $ (150,000) $
Retained earnings, 1/1/04 (880,000) (490,000)
Net income (230,000) (150,000)
Dividends paid 90,000 5,000
Retained earnings, 12/31/04 (1,020,000) $ (635,000) $
Cash 110,000 $ 15,000 $
Receivables 380,000 220,000
Inventory 560,000 280,000
Investment in Andrews 470,000 -
Land 460,000 340,000
Buildings and equipment (net) 920,000 380,000
Total assets 2,900,000 $ 1,235,000 $
Liabilities (780,000) $ (470,000) $
Preferred Stock (300,000) -
Common stock (500,000) (100,000)
Additional paid-in capital (300,000) (30,000)
Retained earnings, 12/31/04 (1,020,000) (635,000)
Total liabilities and equity (2,900,000) $ (1,235,000) $
Student Name:
Class:
Problem 03-26
a. How was $135,000 Equity in Income of Small balance computed?
Life Excess
Purchase price allocations (years) Amortizations
Land
Equipment
Goodwill
Total
b. Totals to be reported by business combination for year ending December 31, 2009
Account Name Balance Explanation
Revenues
Cost of goods sold
Depreciation expense
Equity in Income of Small
Net income
Retained earnings, 1/1/09
Dividends paid
Retained earnings, 12/31/09
Current assets
Investment in Small
Land
Buildings
Student Name:
Class:
Problem 03-26
Equipment
Goodwill
Total assets
Liabilities
Common stock
Retained earnings
Total liabilities & equity
Student Name:
Class:
Problem 03-26
Part c. Consolidated Worksheet
GIANT COMPANY AND SMALL COMPANY
Consolidation Worksheet
For Year Ending December 31, 2009
Giant Small Consolidation Entries Consolidated
Accounts Company Company Debit Credit Totals
Revenues (1,175,000) $ (360,000) $
Costs of goods sold 550,000 90,000
Depreciation expense 172,000 130,000
Equity income of Small (135,000) -
Net income (588,000) $ (140,000) $
Retained earnings, 1/1/09 (1,417,000) (620,000)
Net income (588,000) (140,000)
Dividends paid 310,000 110,000
Retained earnings, 12/31/09 (1,695,000) $ (650,000) $
Current assets 398,000 $ 318,000 $
Investment in Small 995,000 -
Land 440,000 165,000
Buildings (net) 304,000 419,000
Equipment (net) 648,000 286,000
Goodwill - -
Total assets 2,785,000 $ 1,188,000 $
Liabilities (840,000) (368,000)
Common stock (250,000) (170,000)
Retained earnings, 12/31/09 (1,695,000) (650,000)
Total liabilities and equity (2,785,000) $ (1,188,000) $
Parentheses indicate a credit balance.
Part d. If goodwill was impaired, how would the parent accounts
reflect this? How would the worksheet process change?
What impact does impairment loss have on consolidated
financial statements?
GIANT COMPANY
General Journal
Account Debit Credit
Goodwill impairment loss
Investment in Small
Given Data P03-26:
Small outstanding common stock purchased by Giant 100%
Portion of purchase price applied to undervalued land 90,000 $
Portion of purchase price applied to equipment with 10-year life 50,000
Portion of unallocated purchase price allocated to goodwill 60,000
Amount Small owes Giant on December 31, 2009 10,000
Giant Small
12/31/2009 12/31/2009
Revenues (1,175,000) $ (360,000) $
Cost of goods sold 550,000 90,000
Depreciation expense 172,000 130,000
Equity in income of Small (135,000) -
Net income (588,000) $ (140,000) $
Retained earnings, 1/1/09 (1,417,000) (620,000)
Net income (588,000) (140,000)
Dividends paid 310,000 110,000
Retained earnings, 12/31/09 (1,695,000) $ (650,000) $
Current assets 398,000 $ 318,000 $
Investment in Small 995,000 -
Land 440,000 165,000
Buildings (net) 304,000 419,000
Equipment (net) 648,000 286,000
Goodwill - -
Total assets 2,785,000 $ 1,188,000 $
Liabilities (840,000) $ (368,000) $
Common stock (250,000) (170,000)
Retained earnings, 12/31/09 (1,695,000) (650,000)
Total liabilities and equity (2,785,000) $ (1,188,000) $
Student Name:
Class:
Problem 03-27
a. Mergaronite's consolidated totals after 5 years (December 31, 2007)
Annual
Life Excess
Purchase price allocations (years) Amortizations
Land
Buildings
Equipment
Customer list
Total
Account Name Balance Explanation
Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Buildings (net)
Equipment (net)
Customer list
Common stock
Additional paid-in capital
Student Name:
Class:
Problem 03-27
Part b. Why can consolidated totals be determined without knowing
the consolidation method used?
Part c. If the equity method is used by the parent, what
consolidation entries would be used?
MERGARONITE COMPANY
General Journal
Account Debit Credit
Consolidation Entry S
Common stock (Hill)
Additional paid-in capital (Hill)
Retained earnings, 1/1/07
Investment in Hill
(To eliminate beginning stockholders' equity of subsidiary)
Consolidation Entry A
Land
Equipment (net)
Customer list (net)
Buildings (net)
Investment in Hill
(To record unamortized allocation balances as of beginning of current year)
Consolidation Entry I
Investment income
Investment in Hill
(To remove equity income recognized during year-equity method accrual
[based on subsidiary's income] less amortization for the year)
Consolidation Entry D
Investment in Hill
Dividends paid
(To remove intercompany dividend payments)
Consolidation Entry E
Amortization expense
Depreciation expense
Buildings
Equipment
Customer list
(To recognize excess amortizations for period)
Given Data P03-27:
Mergaronite Hill
12/31/2007 12/31/2007
Revenues 600,000 $ 250,000 $
Cost of goods sold 280,000 100,000
Depreciation expense 120,000 50,000
Investment income not given NA
Retained earnings, 1/1/07 900,000 600,000
Dividends paid 130,000 40,000
Current assets 200,000 690,000
Land 300,000 90,000
Buildings (net) 500,000 140,000
Equipment (net) 200,000 250,000
Liabilities 400,000 310,000
Common stock 300,000 40,000
Additional paid-in capital 50,000 160,000
Mergaronite's $10 par common stock issued 7,000
for acquisition of Hill - number of shares
Fair market value of Mergaronite stock - per share 100 $
Hill's land undervalued by 20,000
Hill's buildings overvalued by 30,000
Hill's equipment undervalued by 60,000
Remaining life of buildings - years 10
Remaining life of equipment - years 5
Appraised value of Hill's customer list 100,000 $
Remaining life of Hill's customer list - years 20
Student Name:
Class:
Problem 03-30
a. Consolidation worksheet entries - cost method
Initial purchase price
Book value of subsidiary
Cost in excess of book value
Excess cost assigned to equipment-fair market value
Excess cost not assigned to specific accounts-goodwill
Excess amortization expenses:
Equipment
Goodwill
Total
BROOME
General Journal
Account Debit Credit
Consolidation Entry *C
Investment in subsidiary
Retained earnings, 1/1/07
(To record income of subsidiary for 2005 and 2006 in excess of dividends paid)
Consolidation Entry S
Common stock-Charlotte
Retained earnings, 1/1/07
Investment in subsidiary
(To eliminate beginning stockholders' equity of subsidiary)
Consolidation Entry A
Equipment
Goodwill
Goodwill
Investment in subsidiary
(To recognize allocations after 2 years amortization. Separate figures are for
clarification only. Normally goodwill balances would be combined)
Consolidation Entry I
Dividend income
Dividends paid
(To remove intercompany dividend payments)
Consolidation Entry E
Depreciation expense
Equipment
(To recognize excess amortizations for year)
Student Name:
Class:
Problem 03-30
b. Consolidation worksheet entries - equity method
BROOME
General Journal
Account Debit Credit
Consolidation Entry *C
Retained earnings, 1/1/07 (parent)
Investment in subsidiary
(To record income of subsidiary for 2005 and 2006)
Consolidation Entry S
Common stock-Charlotte
Retained earnings, 1/1/07 - Charlotte
Investment in subsidiary
(To eliminate stockholders' equity accounts of subsidiary)
Consolidation Entry A
Equipment
Goodwill
Goodwill
Investment in subsidiary
(To recognize allocations after 2 years amortization. Separate figures are for
clarification only. Normally goodwill balances would be combined)
Consolidation Entry I
Income of subsidiary
Investment of subsidiary
(To eliminate intercompany equity accrual recorded by parent as income)
Consolidation Entry D
Investment in subsidiary
Dividends paid
(To eliminate impact of intercompany dividend payment recorded by parent
as a reduction in Investment in Subsidiary Account)
Consolidation Entry E
Depreciation expense
Equipment
(To recognize excess amortizations for year)
Given Data P03-30:
Broom paid cash for all outstanding common stock 430,000 $
of Charlotte, Inc.
Charlotte's book value at date of acquisition 340,000
Book value of Charlotte's common stock 200,000
Book value of Charlotte's retained earnings 140,000
Book value of Charlotte's equipment 40,000
Market value of Charlotte's equipment 70,000
Remaining life of Charlotte's equipment 5
Additional cash paid to previous owners of Charlotte 20,000 $
Charlotte's balances during subsequent years:
Net Dividends
Income Paid
2005 65,000 $ 25,000 $
2006 75,000 35,000
2007 80,000 40,000
Student Name:
Class:
Problem 03-32
a. Investment in Jasmine Company
Schedule 1 - Purchase Price Allocation and Amortization
Purchase price
Book value of Jasmine
Cost in excess of book value
Annual
Allocation to specific accounts Life Excess
based on fair market value: (years) Amortizations
Equipment
Buildings (overvalued)
Goodwill
Total
Investment in Jasmine Company - 12/31/07
Purchase price
2005 Increase in book value of subsidiary
2005 Excess amortizations
2006 Increase in book value of subsidiary
2006 Excess amortizations
2007 Increase in book value of subsidiary
2007 Excess amortizations
Investment in Jasmine
Student Name:
Class:
Problem 03-32
b. Equity in subsidiary earnings - 2007
Income accrual - 2007
Excess amortizations
Equity in subsidiary earnings
c. Consolidated net income - 2007
Consolidated revenues
Consolidated expenses
Excess amortization expenses
Consolidated net income
d. Consolidated equipment - 12/31/07
Book values added together
Allocation of purchase price
Excess depreciation 2005 - 2007
Consolidated equipment
e. Consolidated buildings - 12/31/07
Book values added together
Allocation of purchase price
Excess depreciation 2005 - 2007
Consolidated buildings
f. Consolidated goodwill - 12/31/07
Allocation of purchase price
Amortization 2005 - 2007
Consolidated goodwill
g. Consolidated common stock - 12/31/07
h. Consolidated retained earnings - 12/31/07
Given Data P03-32:
Tyler paid cash for all outstanding stock 206,000 $
of Jasmine
Jasmine's book value at date of acquisition 140,000
Jasmine's equipment was undervalued 54,400
Remaining life of Jasmine's equipment 8
Jasmine's building was overvalued 10,000 $
Remaining life of Jasmine's building 20
Jasmine's balances during subsequent years:
Net Dividends
Income Paid
2005 50,000 $ 10,000 $
2006 60,000 40,000
2007 30,000 20,000
Financial records as of December 31, 2007:
Tyler Jasmine
Revenues-operating 310,000 $ 104,000 $
Expenses 198,000 74,000
Equipment (net) 320,000 50,000
Buildings (net) 220,000 68,000
Common stock 290,000 50,000
Retained earnings, 12/31/07 410,000 160,000
Student Name:
Class:
Problem 03-34
a. Picante 12/31/07 Investment in Salsa account balance
Cost
Income 2006
In-process R&D write-off
Amortization 2006
Income 2007
Dividends paid in 2007
Amortization 2007
Investment balance 12/31/07
Part b. Consolidated Worksheet
PICANTE CORPORATION AND SALSA CORPORATION
Consolidation Worksheet
For Year Ending December 31, 2007
Picante Salsa Adjustments Consolidated
Accounts Corporation Corporation Debit Credit Totals
Sales (3,500,000) $ (1,000,000) $
Cost of goods sold 1,600,000 630,000
Deprecation expense 540,000 160,000
Subsidiary income (203,000)
Net income (1,563,000) $ (210,000) $
Retained earnings, 1/1/07 (3,000,000) $ (800,000) $
Net income (1,563,000) (210,000)
Dividends paid 200,000 25,000
Retained earnings, 12/31/07 (4,363,000) $ (985,000) $
Cash 228,000 $ 50,000 $
Accounts receivable 840,000 155,000
Inventory 900,000 580,000
Investment in Salsa 2,042,000
Land 3,500,000 700,000
Equipment (net) 5,000,000 1,700,000
Goodwill 290,000
Total assets 12,800,000 $ 3,185,000 $
Accounts payable (193,000) $ (400,000) $
Long-term debt (3,094,000) (800,000)
Common stock - Picante (5,150,000)
Common stock - Salsa (1,000,000)
Retained earnings, 12/31/07 (4,363,000) (985,000)
Total liabilities and equity (12,800,000) $ (3,185,000) $ - -
Parentheses indicate a credit balance.
Student Name:
Class:
Problem 03-34
Part c. Cost method - *C entry to convert Picante's
1/1/07 retained earnings
Conversion adjustment under cost method from cost allocation
schedule:
In-process R&D
Equipment
Total amortization
PICANTE CORPORATION
General Journal
Account Debit Credit
Consolidation Entry *C
Investment in Salsa
Retained earnings - Picante
Given Data P03-34:
Picante paid cash for all outstanding voting stock 1,765,000 $
of Salsa
Salsa's balance sheet at 1/1/06:
Cash 14,000 $
Accounts Receivable 100,000
Land 700,000
Equipment (net) 1,886,000
2,700,000 $
Accounts Payable 120,000 $
Long-term Debt 930,000
Common Stock 1,000,000
Retained Earnings 650,000
2,700,000 $
Cost allocation at purchase date:
Purchase price 1,765,000 $
Book value acquired 1,650,000
Excess cost 115,000
to in-process research and development 44,000 $
to equipment (8 year remaining life) 56,000 100,000
to goodwill (indefinite life) 15,000 $
Financial records as of December 31, 2007:
December 31, 2007 Picante Salsa
Sales (3,500,000) $ (1,000,000) $
Cost of goods sold 1,600,000 630,000
Deprecation expense 540,000 160,000
Subsidiary income (203,000)
Net income (1,563,000) $ (210,000) $
Retained earnings, 1/1/07 (3,000,000) $ (800,000) $
Net income (1,563,000) (210,000)
Dividends paid 200,000 25,000
Retained earnings, 12/31/07 (4,363,000) $ (985,000) $
Cash 228,000 $ 50,000 $
Accounts receivable 840,000 155,000
Inventory 900,000 580,000
Investment in Salsa 2,042,000
Land 3,500,000 700,000
Equipment (net) 5,000,000 1,700,000
Goodwill 290,000
Total assets 12,800,000 $ 3,185,000 $
Accounts payable (193,000) $ (400,000) $
Long-term debt (3,094,000) (800,000)
Common stock (5,150,000) (1,000,000)
Retained earnings, 12/31/07 (4,363,000) (985,000)
Total liabilities and equities (12,800,000) $ (3,185,000) $