ROBLEM 3-1 Consolidated Workpaper : Two Cases

The two following separate cases show the financial position of a parent company and its subsidiary
company on November 30, 2011, just after the parent had purchased 90% of the subsidiarys stock :
Case I
Case II
P Company S Company
P Company
S Company
Current Assets
$880.000
$260.000
$780.000
$280.000
Investment in S Company
190.000
190.000
Long-term assets
1.400.000
400.000
1.200.000
400.000
Other assets
90.000
40.000
70.000
70.000
Total
$2.560.000
$700.000
$2.240.000
$750.000
Current liability
$640.000
$270.000
$700.000
$260.000
Long-term liability
850.000
290.000
920.000
270.000
Common Stock
600.000
180.000
600.000
180.000
Retained earning
470.000
(40.000)
20.000
40.000
Total
$2.560.000
$700.000
$2.240.000
$750.000
Required :
A. Prepare a November 30, 2011, consolidated balance sheet workpaper for each of the
foregoing cases. In Case I, any difference between book value of equity and the value implied
by the purchase price relates to subsidiary long-term assets. In Chase II, assume that any
excess of book value over the value implied by purchase price is due to overvalued long-term
assets.
B. Assume that Company Ss balance sheet is the same as the balance sheet used in Case I (from
part A). Suppose that there were 50.000 shares of S Company common stock outstanding and
that Company P acquired 90% of the shares for $4.50 a share. Shortly after acquisition, the
noncontroling shares were selling for $4.25 a share. Prepare a computation and allocation of
difference schedule considering this information.
Answers
A.
P COMPANY AND SUBSIDIARY
Consolidated Balance Sheet Workpaper
November 30, 2011
P
Company
880,000
190,000

Current Assets
Invesment in S Company
Diifference between Implied
&Book value
Long-term Assets
1,400,000
Other Assets
90,000
Assets
2,560,000 700,000
Current Liabilities
640,000
Long-term Liabilities
850,000
Common Stock :
P Company
600,000
S Company
Retained Earning :
P Company
470,000
S Company
Noncontroling Interest
Total Liabilities and Equity
2,560,000

S
Company
260,000

Eliminations
Dr.
Cr.

Noncontrolling
Interest

Consolidated
Balance
1,140,000

(1) 190,000

400,000
40,000

(1) 71,111 (2) 71,111

(2) 71,111

1,871,111
130,000

Total

3,141,111
270,000
290,000

910,000
1,140,000
600,000

180,000

(1)180,000
470,000

(40,000)
70,000

322,222

(1) 40,000
(2) 21,111
322,222

21,111

21,111
3,141,111

B.
P COMPANY AND SUBSIDIARY
Consolidated Balance Sheet Workpaper
November 30, 2011
P
Company
780,000
190,000

S
Company
280,000

Eliminations
Dr.
Cr.

Noncontrolling
Interest

Current Assets
Invesment in S Company
(1) 190,000
Diifference between Implied
&Book value
(2) 8,899 (2) 8,889
Long-term Assets
1,200,000 400,000
(2) 8,889
Other Assets
70,000
70,000
Assets
2,240,000 750,000
2,791,111
Current Liabilities
700,000 260,000
Long-term Liabilities
920,000 270,000
Common Stock :
P Company
600,000
S Company
180,000
(1)180,000
Retained Earning :
P Company
20,000
S Company
40,000
(1) 40,000
Noncontroling Interest
(1) 21,111
21,111
Total Liabilities and Equity
2,240,000
750,000
228,889
228,889
(1) To eliminate investment account and create noncontrolling interest account
(2) To allocate the difference between implied value and book value to long-term assets

Computation and Allocation of Differece ( Case 2)

Parent Share Non Controlling
Share
Punchase price and implied value
190,000
21,111
Less : Book value of equity acquired
198,000
22,000
Difference between implied and book value (8,000)
(889)
Decrease Long-term assets to fair value
8,000
889
Balance
0
0
*$190,000/0.90

Consolidated
Balance
1,060,000

1,591,111
130,000

Total

960,000
1,190,000
600,000

470,000
21,111
2,791,111

Entire Value
211,111*
220,000
(8,889)
8,889
0