Sample Problems Module 3 (1)

.pdf
School
University of Notre Dame **We aren't endorsed by this school
Course
AA 0P
Subject
Accounting
Date
Nov 19, 2023
Pages
17
Uploaded by phuongnhu1503 on coursehero.com
Sample Postings - Module 3: Consolidation at Acquisition (Chapter 4) and in Subsequent Years (Chapter 5) REMEMBER THE CAUTIONARY NOTE PAGE 161 - WE USE THE FAIR VALUE ENTERPRISE (FVE) THEORY FOR ALL PROBLEMS TO PREPARE CONSOLIDATED STATEMENTS UNLESS YOU ARE TOLD OTHERWISE. THIS APPLIES TO THE ENTIRE COURSE Chapter 4 Example: Fair Value Enterprise (FVE) Theory and Identifiable Net Asset (INA) Theory: 1) Under INA, goodwill on the consolidated balance sheet is only P's share 2) Under INA, NCI = (S's book value + increments/ decrements of S) x NCI % share Puff and Smoke - INA and FVE Methods On January 1, 20X2 Puff purchased 60% of the outstanding common shares of Smoke for $500,000 cash. The balance sheets of both companies are shown below, immediately after the acquisition: Balance Sheets at Jan 1, 20X2 Puff Smoke_________ Book Value Fair Value Cash 200,000 15,000 15,000 Accounts Receivable 75,000 20,000 20,000 Inventory 1,650,000 150,000 175,000 Capital Assets at net 2,150,000 875,000 950,000 Investment in Smoke 500,000 ------- -------- 4,575,000 1,060,000 1,160,000 Current Liabilities 230,000 30,000 30,000 Long Term Debt 2,250,000 400,000 400,000 Common Shares 1,000,000 200,000 Retained Earnings 1,095,000 430,000 4,575,000 1,060,000 430,000 1) Calculate the acquisition differential, goodwill and the value of non-controlling interest at January 1,20X2 INA Method: Cost of 60% $500,000 Implied Value of 100% 833,333 Book value of net assets* Common Shares 200,000 Retained Earnings 430,000 630,000 Acquisition differential 203,333 Fair value increments/decrements Inventory 25,000 Capital assets 75,000 100,000 Goodwill 103,333 Less goodwill not allocated to non-controlling interest (.4x103,333) 41,333 Goodwill allocated to Puff (to consolidated balance sheet) $62,000 NCI (b/s) = fair value of net identifiable assets x .4 (630,000+100,000) x .40 = $292,000
FVE Method Goodwill = 103,333 (see above) NCI (b/s) = 833,333 x .4 = $333,333 *you may also use assets - liabilities = 1,060,000 - 430,000 = 630,000 2) Prepare the consolidated balance sheet at acquisition date under the INA and FVE theories using the direct method. Under the acquisition method, take Puff's carrying value + Smoke's fair value (book + increments/decrements) Under INA: Consolidated Balance Sheet Puff Corporation At January 1, 20X2 Assets: Cash (200,000 + 15,000) 215,000 Accounts Receivable (75,000 + 20,000) 95,000 Inventory (1,650,000 + 150,000 + 25,000 ) 1,825,000 Capital Assets (net) (2,150,000 + 875,000 + 75,000 ) 3,100,000 Goodwill 62,000 Total Assets $5,297,000 Liabilities and Shareholders' Equity Liabilities: Current Liabilities (230,000 + 30,000) 260,000 Long Term Debt (2,250,000 + 400,000) 2,650,000 Total Liabilities $2,910,000 Shareholders' Equity: Common Shares 1,000,000 Retained Earnings 1,095,000 Non-controlling Interest 292,000 Total Shareholders' Equity $2,387,000 Total Liabilities and Shareholders' Equity $5,297,000
Under the FVE Theory: Consolidated Balance Sheet Puff Corporation At January 1, 20X2 Assets: Cash (200,000 + 15,000) 215,000 Accounts Receivable (75,000 + 20,000) 95,000 Inventory (1,650,000 + 150,000 + 25,000 ) 1,825,000 Capital Assets (net) (2,150,000 + 875,000 + 75,000 ) 3,100,000 Goodwill 103,333 Total Assets $5,338,333 Liabilities and Shareholders' Equity Liabilities: Current Liabilities (230,000 + 30,000) 260,000 Long Term Debt (2,250,000 + 400,000) 2,650,000 Total Liabilities $2,910,000 Shareholders' Equity: Common Shares 1,000,000 Retained Earnings 1,095,000 Non-controlling Interest 333,333 Total Shareholders' Equity $2,428,333 Total Liabilities and Shareholders' Equity $5,338,333
Page1of 17
Uploaded by phuongnhu1503 on coursehero.com