1、0CHAPTER 2UNDERSTANDING THE ISSUES1. (a) Johnson has a passive level of ownership and in future periods will record dividend income of only 10% of Bicklers declared dividends. Johnson will also have to adjust the investment to market value at the end of each period. (b) Johnson has an influential le
2、vel of ownership and in future periods will record investment income of 30% of Bicklers net income. Any dividends declared by Bickler will reduce the investment account, but will not affect the investment income amount.(c) Johnson has a controlling level of ownership and in future periods will add 1
3、00% of Bicklers net income to its own net income. Bicklers nominal account balances will be added to Johnsons nominal accounts. Any dividends declared by Bickler will not affect Johnsons income.(d) Johnson has a controlling level of ownership and in future periods will add 100% of Bicklers net incom
4、e to its own net income. All (100%) of Bicklers nominal account balances will be added to Johnsons nominal account balances. This will result in consolidated net income, followed by a distribution to the noncontrolling interest equal to 20% of Bicklers income. Any dividends declared by Bickler will
5、not affect Johnsons income.2. The elimination process serves to make the consolidated financial statements appear as though the parent had purchased the net assets of the subsidiary. The investment account and the subsidiary equity accounts are eliminated and replaced by the subsidiarys net assets.
6、3. (a) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value $900,000 $900,000 N/AFair value of net assets excluding goodwill 600,000 600,000Goodwill . $300,000 $300,000Net Assetsmarked up $200,000 ($600,000 fair value $400,000 book value)Goodwill$300,
7、000 ($900,000 $600,000)(b) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (80%) (20%)Company fair value $900,000 $720,000 $180,000Fair value of net assets excluding goodwill 600,000 480,000 120,000Goodwill . $300,000 $240,000 $ 60,000Net Assetsmarked up $200,000 ($600,000 fa
8、ir value $400,000 book value)Goodwill$300,000 ($900,000 $600,000)The NCI would be valued at $180,000 (20% of the implied company value) to allow the full recognition of fair values.14. (a) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value $1,000,00
9、0 $1,000,000 N/AFair value of net assets excluding goodwill 850,000 850,000Goodwill . $ 150,000 $ 150,000The determination and distribution of excess schedule would make the following adjustments:$1,000,000 price $350,000 net book value = $650,000 excess to be allocated as follows:Current assets $ 5
10、0,000Fixed assets . 450,000Goodwill . 150,000$650,000(b) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value $ 500,000 $ 500,000 N/AFair value of net assets excluding goodwill 850,000 850,000Gain on acquisition. $ (350,000) $ (350,000)The determinati
11、on and distribution of excess schedule would make the following adjustments:$500,000 price $350,000 net book value = $150,000 excess to be allocated as follows:Current assets $ 50,000Fixed assets . 450,000Gain on acquisition . (350,000)$ 150,0005. (a) Company Parent NCIImplied Price ValueValue Analy
12、sis Schedule Fair Value (80%) (20%)Company fair value $1,000,000* $800,000 $200,000Fair value of net assets excluding goodwill 850,000 680,000 170,000Goodwill . $ 150,000 $120,000 $ 30,000*$800,000/80% = $1,000,000The determination and distribution of excess schedule would make the following adjustm
13、ents:$800,000 parents price (80% $350,000 net book value) = $520,000NCI adjustment, $200,000 (20% $350,000 net book value) = 130,000Total adjustment to be allocated = $650,000 as follows:Current assets . $ 50,000Fixed assets 450,000Goodwill . 150,000$650,0002(b) Company Parent NCIImplied Price Value
14、Value Analysis Schedule Fair Value (80%) (20%)Company fair value $770,000* $600,000 $170,000*Fair value of net assets excluding goodwill 850,000 680,000 170,000Gain on acquisition. $ (80,000) $ (80,000) N/A*Cannot be less than the NCI share of the fair value of net assets excluding goodwill.*$600,00
15、0 parent price + $170,000 minimum allowable for NCI = $770,000.$600,000 parents price (80% $350,000 book value) = $320,000NCI adjustment, $170,000 (20% $350,000 net book value) = 100,000Total adjustment to be allocated = $420,000 as follows:Current assets . $ 50,000Fixed assets 450,000Gain on acquis
16、ition. (80,000)$420,0006. Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (80%) (20%)Company fair value $1,000,000* $800,000 $200,000Fair value of net assets excluding goodwill 800,000 680,000 120,000Goodwill . $ 200,000 $120,000 $ 80,000*$800,000/80% = $1,000,000The NCI will
17、 be valued at $200,000, which is 20% of the implied company value. The NCI account will be displayed on the consolidated balance sheet as a subdivision of equity. It is shown as a total, not broken down into par, paid-in capital in excess of par, and retained earnings.Ch. 2Exercises4EXERCISESEXERCIS
18、E 2-1Solara CorporationPro Forma Income StatementOwnership Levels10% 20% 70%Sales. $640,000 $640,000 $1,010,000Cost of goods sold 300,000 300,000 530,000Gross profit . $340,000 $340,000 $ 480,000Selling and administrative expenses. 120,000 120,000 195,000Operating income $220,000 $220,000 $ 285,000D
19、ividend income (10% $15,000 dividends) . 1,500Investment income (20% $65,000 reportedincome) . 13,000Net income $221,500 $233,000 $ 285,000Noncontrolling interest (30% $65,000 reported income) . 19,500Controlling interest $ 265,500EXERCISE 2-2Company Parent NCIImplied Price ValueValue Analysis Sched
20、ule Fair Value (100%) (0%)Company fair value. $530,000 $530,000 N/AFair value of net assets excluding goodwill ($280,000 book value + $20,000) 300,000 300,000Goodwill $230,000 $230,0001. (a) Cash 20,000*Accounts Receivable . 70,000Inventory 100,000Property, Plant, and Equipment ($270,000 + $20,000)
21、. 290,000Goodwill. 230,000Current Liabilities . 80,000Bonds Payable. 100,000Cash. 530,000*Cash may be shown as a net credit of $510,000.Ch. 2Exercises5Exercise 2-2, Concluded(b) Glass CompanyBalance SheetAssetsCurrent assets:Cash. $ 30,000Accounts receivable. 120,000Inventory 150,000 $ 300,000Proper
22、ty, plant, and equipment (net) . 520,000Goodwill . 230,000Total assets . $1,050,000Liabilities and Stockholders EquityLiabilities:Current liabilities. $220,000Bonds payable . 350,000 $ 570,000Stockholders equity:Common stock ($100 par) $200,000Retained earnings 280,000 480,000Total liabilities and s
23、tockholders equity. $1,050,0002. (a) Investment in Plastic 530,000Cash. 530,000(b) Investment in Plastic appears as a long-term investment on Glasss unconsolidated balance sheet.(c) The balance sheet would be identical to that which resulted from the asset acquisition of part (1).EXERCISE 2-3Company
24、 Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value. To be determined N/AFair value of net assets excluding goodwill. $560,000* $560,000GoodwillGain on acquisition*$370,000 net asset book value + $40,000 inventory increase + $50,000 land increase + $100,000
25、 building increase = $560,000 fair value(1) Goodwill will be recorded if the price is above $560,000.(2) A gain will be recorded if the price is below $560,000.Ch. 2Exercises6EXERCISE 2-4(1) Investment in Pail Inc. 950,000Cash . 950,000Acquisition Costs Expense 10,000Cash . 10,000(2) Company Parent
26、NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value $950,000 $950,000 N/AFair value of net assets excluding goodwill . 850,000* 850,000Goodwill. $100,000 $100,000*$700,000 net book value + $50,000 inventory increase + $100,000 depreciable fixed assets increase = $8
27、50,000 fair value Determination and Distribution of Excess ScheduleCompany Parent NCIImplied Price ValueFair Value (100%) (0%)Fair value of subsidiary $950,000 $950,000 N/ALess book value of interest acquired:Common stock, ($10 par) . $300,000Paid-in capital in excess of par 380,000Retained earnings
28、. 20,000Total stockholders equity . $700,000 $700,000Interest acquired. 100%Book value . $700,000Excess of fair value over book value . $250,000 $250,000Adjustment of identifiable accounts:WorksheetAdjustment KeyInventory ($250,000 fair $200,000 book value) . $ 50,000 debit D1Depreciable fixed asset
29、s ($700,000 fair $600,000 book value) . 100,000 debit D2Goodwill . 100,000 debit D3Total $250,000Ch. 2Exercises7Exercise 2-4 Concluded(3) Elimination entries:Common Stock ($10 par)Pail 300,000Paid-In Capital in Excess of ParPail 380,000Retained EarningsPail . 20,000Investment in Pail Inc 700,000Inve
30、ntory . 50,000Depreciable Fixed Assets . 100,000Goodwill 100,000Investment in Pail Inc 250,000EXERCISE 2-5(1) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value $ 700,000 $ 700,000 N/AFair value of net assets excluding goodwill . 885,000 885,000Good
31、willGain on acquisition $(185,000) $(185,000)Determination and Distribution of Excess ScheduleCompany Parent NCIImplied Price ValueFair Value (100%) (0%)Price paid for investment . $700,000 $700,000 N/ALess book value of interest acquired:Common stock ($5 par) $200,000Paid-in capital in excess of pa
32、r 300,000Retained earnings. 175,000Total equity . $675,000 $675,000Interest acquired. 100%Book value . $675,000Excess of fair value over bookvalue . $ 25,000 $ 25,000Ch. 2Exercises8Exercise 2-5 ConcludedAdjustment of identifiable accounts:WorksheetAdjustment KeyInventory ($215,000 fair $200,000 book
33、 value) . $ 15,000 debit D1Property, plant and equipment ($700,000 fair $500,000 book value) . 200,000 debit D2Computer software ($130,000 fair $125,000 book value) 5,000 debit D3Premium on bonds payable ($200,000 fair $210,000 book value) . (10,000) credit D4Gain on acquisition (185,000) credit D5T
34、otal $ 25,000(2) Elimination entries:Common Stock ($5 par)Genall 200,000Paid-In Capital in Excess of ParGenall 300,000Retained EarningsGenall. 175,000Investment in Genall Company. 675,000Inventory . 15,000Property, Plant, and Equipment 200,000Computer Software . 5,000Gain on Acquisition. 185,000Prem
35、ium on Bonds Payable . 10,000Investment in Genall Company. 25,000EXERCISE 2-6(1) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (80%) (20%)Company fair value $900,000* $720,000 $180,000*Fair value of net assets excluding goodwill . 820,000 656,000 164,000Goodwill. $ 80,000 $
36、 64,000 $ 16,000*$720,000/80% = $900,000*$900,000 20% = $180,000Ch. 2Exercises9Exercise 2-6 ConcludedDetermination and Distribution of Excess ScheduleCompany Parent NCIImplied Price ValueFair Value (80%) (20%)Fair value of subsidiary $900,000 $720,000 $180,000Less book value of interest acquired:Com
37、mon stock ($5 par) $100,000Paid-in capital in excess of par 150,000Retained earnings. 250,000Total equity . $500,000 $500,000 $500,000Interest acquired. 80% 20%Book value . $400,000 $100,000Excess of fair value over bookvalue . $400,000 $320,000 $ 80,000Adjustment of identifiable accounts:WorksheetA
38、djustment KeyInventory ($300,000 fair $200,000 book value) . $100,000 debit D1Land ($200,000 fair $100,000 book value) . 100,000 debit D2Building ($600,000 fair $450,000 book value) . 150,000 debit D3Equipment ($200,000 fair $230,000 book value) . (30,000) credit D4Goodwill . 80,000 debit D5Total $4
39、00,000(2) Elimination entries:Common Stock ($5 par)Cobalt (80%) . 80,000Paid-In Capital in Excess of ParCobalt (80%) . 120,000Retained EarningsCobalt (80%) 200,000Investment in Cobalt Company. 400,000Inventory . 100,000Land 100,000Building . 150,000Goodwill 80,000Equipment. 30,000Investment in Cobal
40、t Company (excess remaining) . 320,000Noncontrolling Interest (to adjust to fair value) . 80,000Ch. 2Exercises10EXERCISE 2-7(1) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (80%) (20%)Company fair value $646,000 $512,000 $134,000*Fair value of net assets excluding goodwill
41、 . 670,000 536,000 134,000Gain on acquisition $ (24,000) $ (24,000) N/A*must at least equal fair value of assetsDetermination and Distribution of Excess ScheduleCompany Parent NCIImplied Price ValueFair Value (80%) (20%)Price paid for investment . $646,000 $512,000 $134,000Less book value of interes
42、t acquired:Common stock ($5 par) $ 50,000Paid-in capital in excess of par 130,000Retained earnings. 370,000Total equity . $550,000 $550,000 $550,000Interest acquired. 80% 20%Book value . $440,000 $110,000Excess of fair value over book value . $96,000 $ 72,000 $ 24,000Adjustment of identifiable accou
43、nts:WorksheetAdjustment KeyInventory ($400,000 fair $280,000 book value) . $ 120,000 debit D1Property, plant and equipment ($500,000 fair $400,000 book value) . 100,000 debit D2Goodwill ($0 fair $100,000 book value) . $(100,000) credit D3Gain on acquisition (24,000) credit D4Total $ 96,000Ch. 2Exerc
44、ises11Exercise 2-7 Concluded(2) Elimination entries:Common Stock ($5 par) (80%) . 40,000Paid-In Capital in Excess of Par (80%) . 104,000Retained Earnings (80%) 296,000Investment in Sundown Company 440,000Inventory . 120,000Property, Plant, and Equipment 100,000Goodwill 100,000Gain on Acquisition (Ve
45、nus retained earnings) 24,000Investment in Sundown Company (excess remaining). 72,000Noncontrolling Interest (to adjust to fair value) . 24,000EXERCISE 2-8(1) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (80%) (20%)Company fair value $450,000 $360,000* $90,000Fair value of
46、 net assets excluding goodwill . 390,000 312,000 78,000Goodwill. $ 60,000 $ 48,000 $12,000*1,000 prior shares included at $45 ($315,000/7,000 shares) per share, the market value on 1/1/X6.Determination and Distribution of Excess ScheduleCompany Parent NCIImplied Price ValueFair Value (80%) (20%)Fair
47、 value of subsidiary $450,000 $360,000 $ 90,000Less book value of interest acquired:Common stock ($10 par) $100,000Retained earnings. 240,000Total equity . $340,000 $340,000 $340,000Interest acquired. 80% 20%Book value . $272,000 $ 68,000Excess of fair value over book value . $110,000 $ 88,000 $ 22,
48、000Ch. 2Exercises12Exercise 2-8 ConcludedAdjustment of identifiable accounts:WorksheetAdjustment KeyEquipment ($150,000 fair $100,000 book value) . $ 50,000 debit D1Goodwill . 60,000 debit D2Total $110,000(2) Investment in Doyle. 315,000Cash . 315,000Investment in Doyle (1,000 $45) 45,000Available-f
49、or-Sale Investment. 40,000Unrealized Gain on Investment 5,000Note: Applicable allowance for market value adjustment would also be reversed.EXERCISE 2-9(1) Investment in Craig Company. 950,000Cash . 950,000(2) Company Parent NCIImplied Price ValueValue Analysis Schedule Fair Value (100%) (0%)Company fair value $950,000 $950,000 N/AFair value of net assets excluding goodwill . 900,000Goodwill. $ 50,000Determination and Distribution of Excess ScheduleCompany Parent NCIImplied Price Va
