Valuation of subsidiary accounts is based on the acquisition-date fair value of the company frequently determined by the consideration transferred and the fair value of the noncontrollin
Trang 1CHAPTER 4 CONSOLIDATED FINANCIAL STATEMENTS
AND OUTSIDE OWNERSHIP
Chapter Outline
I Outside ownership may be present within any business combination
A Complete ownership of a subsidiary is not a prerequisite for consolidation—only enough voting shares need be owned so that the acquiring company has the ability
to control the decision-making process of the acquired company
B Any ownership retained in a subsidiary corporation by a party unrelated to the
acquiring company is termed a noncontrolling interest
II Valuation of subsidiary assets and liabilities poses a problem when a noncontrolling
interest is present follows the acquisition method (Economic Unit Concept) SFAS 141R
and SFAS 160
1 The accounting emphasis is placed on the entire entity that results from the
business combination as measured by the sum of the acquisition-date fair values
of the controlling and noncontrolling interests
2 Valuation of subsidiary accounts is based on the acquisition-date fair value of the company (frequently determined by the consideration transferred and the fair value of the noncontrolling interest); specific subsidiary assets and liabilities are consolidated at their fair values
3 The noncontrolling interest balance is reported as a component of stockholders' equity
III Consolidations involving a noncontrolling interest—subsequent to the date of acquisition
A According to the parent company concept, all noncontrolling interest amounts are calculated in reference to the book value of the subsidiary company
B Only four noncontrolling interest figures are determined for reporting purposes
1 Beginning of year balance
2 Interest in subsidiary’s current income
3 Dividends paid during the period
4 End of year balance
C Noncontrolling interest balances are accumulated in a separate column in the
3 Dividends paid to these outside owners are reflected by extending the
subsidiary's Dividends Paid balance (after eliminating intercompany transfers) into the noncontrolling interest column as a reduction
Trang 24 The end of year noncontrolling interest total is the summation of the three items above and is reported (in this book) between consolidated liabilities and
stockholders' equity
IV Step acquisitions
A An acquiring company may make several different purchases of a subsidiary's stock
in order to gain control
B Upon attaining control, all of the parent’s previous investments in the subsidiary are adjusted to fair value and a gain or loss recognized as appropriate
C Upon attaining control, the valuation basis for the subsidiary is established at its total fair value (the sum of the fair values of the controlling and noncontrolling interests)
Vl Sales of subsidiary stock
A The proper book value must be established within the parent's Investment account
so that the sales transaction can be correctly recorded
B The investment balance is adjusted as if the equity method had been applied during the entire period of ownership
C If only a portion of the shares are being sold, the book value of the investment
account must be reduced based on either a FIFO or a weighted-average cost flow assumption
D If the parent maintains control, any difference between the proceeds of the sale and the equity-adjusted book value of the share sold is recognized as an adjustment to additional paid-in capital
E If the parent loses control with the sale of the subsidiary shares, the difference
between the proceeds of the sale and the equity-adjusted book value of the share sold is recognized as a gain or loss
F Any interest retained by the parent company should be accounted for by either consolidation, the equity method, or the fair value method depending on the
influence remaining after the sale
2 Understand the meaning of the term "noncontrolling interest.”
3 Explain the rationale underlying the acquisition method for accounting for the
Trang 36 Carry out a consolidation when a step acquisition has taken place
7 Record the sale of a subsidiary (or a portion of its shares) when the parent has been applying either the Initial value method, the equity method, or the partial equity method
8 Select an appropriate method by which to account for any shares remaining after the sale
of a portion of an investment in a subsidiary company
Answers to Questions
1 "Noncontrolling interest" refers to an equity interest that is held in a member of a
business combination by an unrelated (outside) party
2 a Acquisition method = $220,000 (fair value)
b Purchase method = $208,000 (all of the book value plus 80 percent of the $60,000 difference between fair value and book value)
3 A control premium is the portion of an acquisition price (above currently traded market
values) paid by a parent company to induce shareholders to sell a sufficient number of shares to obtain control The extra payment typically becomes part of the goodwill acquired in the acquisition attributable to the parent company
4 In practice, noncontrolling interest figures will appear in various locations within
consolidated financial statements The end of year balance can be found in the liability section, in the stockholders' equity section, or between these two The noncontrolling interest's share of net income can be shown as a reduction on either the income
statement or the statement of retained earnings Based on current practice, this textbook reports the ending balance between consolidated liabilities and stockholders' equity with the income allocation shown as a reduction on the income statement
5 The ending noncontrolling interest can be determined on a consolidation worksheet by
adding the components found in the noncontrolling interest column: the beginning
balance plus allocation of current year net income less dividends paid to these outside owners The ending balance can also be determined (at this point in the exploration of consolidated financial statements) by multiplying the outside ownership percentage by the subsidiary's ending book value In subsequent chapters, this calculation must be altered because of various adjustments made within the consolidation process
6 Allsports should remove the pre-acquisition revenues and expenses from the
consolidated totals These amounts have been earned (incurred) prior to ownership by Allsports and therefore should not be reported as earnings for the current parent
company owners
7 In previous years, Tree has appropriately utilized the market-value method in accounting
for its investment in Limb Now, following a second acquisition, consolidation has
become applicable These two methods are not considered to be comparable
Therefore, at the point in time that Tree begins to produce consolidated statements, all previous financial reports must be restated as if the equity method had been applied since the date of the first acquisition This handling presents the reader of the financial statements with figures that are more comparable from year to year
Trang 48 When a company sells a portion of an investment, a gain or loss is recognized based on
the difference between the proceeds received and the book value of the investment (on the portion sold) The correct book value is determined based upon the consistent application of the equity method Thus, if either the Initial value method or the partial equity method has been used, Duke must first restate the account to the equity method before recording the sales transaction This same method is also applied to the
operations of the current period occurring prior to the time of sale
9 Unless control is surrendered, the acquisition method views the sale of subsidiary's
stock as a treasury stock transaction Thus, no gain or loss can be recognized
10 The accounting method choice for the remaining shares depends upon the current
relationship between the two firms If Duke retains control, consolidation is still required However, if the parent now can only significantly influence the decision-making process, the equity method is applied A third possibility is Duke may have lost the power to exercise even significant influence The market-value method then is appropriate
Trang 5Answers to Problems
1 D The acquisition method consolidates assets at fair value at acquisition date
regardless of the parent’s percentage ownership
2 D In consolidating the subsidiary's figures, all intercompany balances must
be eliminated in their entirety for external reporting purposes Even
though the subsidiary is less than fully owned, the parent nonetheless controls it
3 C An asset acquired in a business combination is initially valued at 100%
acquisition-date fair value and subsequently amortized its useful life
Patent fair value at January 1, 2009 $45,000 Amortization for 2 years (10 year life) (9,000) Patent reported amount December 31, 2010 $36,000
4 A Plaster building $510,000
Turner building acquisition-date fair value $300,000
Amortization for 3 years (10-year life) (90,000) 210,000 Consolidated buildings $720,000
-OR-
Plaster building $510,000
Excess acquisition-date fair value allocation 40,000
Excess amortization for 3 years (10-year life) (12,000) 210,000 Consolidated buildings $720,000
5 C Hygille expense $621,000
Nuyt expenses 714,000 Excess fair value amortization (70,000 ÷ 10 yrs) 7,000 Consolidated expenses $1,342,000
6 B Combined revenues $1,100,000
Combined expenses (700,000) Excess acquisition-date fair value amortization (15,000) Consolidated net income $385,000 Less: noncontrolling interest ($85,000 × 40%) (34,000) Consolidated net income to controlling interest $351,000
7 C
8 B
Trang 79 A Amie, Inc Fair value at January 1, 2007:
30% previously owned fair value (30,000 shares × $5) $150,000 60% new shares acquired (60,000 shares × $6) 360,000 10% NCI fair value (10,000 shares × $5) 50,000 Acquisition-date fair value $560,000 Net assets' fair value 500,000 Goodwill $60,000
10 C
11 A Fair value of noncontrolling interest on April 1 $165,000
30% of net income for 9 months (¾ year × $240,000 × 30%) 54,000 Noncontrolling interest December 31 $219,000
12 B Combined revenues $1,300,000
Combined expenses (800,000) Trademark amortization (6,000) Patented technology amortization (8,000) Consolidated net income $486,000
13 C Subsidiary income ($100,000 – $14,000 excess amortizations) $86,000
Noncontrolling interest percentage 40% Noncontrolling interest in subsidiary income $34,400 Fair value of noncontrolling interest at acquisition date $180,000 40% change in Scott book value since acquisition 52,000 Excess fair value amortization ($14,000 × 40%) (5,600) 40% current year income 34,400 Noncontrolling interest at end of year $260,800
14 A Michael trademark balance $260,000
Scott trademark balance 200,000 Excess fair value 60,000 Two years amortization (10-year life) (12,000) Consolidated trademarks $508,000
Trang 815 A Acquisition-date fair value ($60,000 ÷ 80%) $75,000
Strand's book value (50,000) Fair value in excess of book value $25,000 Excess assigned to inventory (60%) .$15,000
Excess assigned to goodwill (40%) .$10,000
Park current assets $70,000 Strand current assets 20,000 Excess inventory fair value 15,000 Consolidated current assets $105,000
16 D Park noncurrent assets $90,000
Strand noncurrent assets 40,000 Excess fair value to goodwill 10,000 Consolidated noncurrent assets $140,000
17 B Add the two book values and include 10% (the $6,000 current portion) of
the loan taken out by Park to acquire Strand
18 B Add the two book values and include 90% (the $54,000 noncurrent portion)
of the loan taken out by Polk to acquire Strand
19 C Park stockholders' equity $80,000
Noncontrolling interest at fair value (20% × $75,000) 15,000 Total stockholders' equity $95,000
20 (15 minutes) (Compute consolidated income and noncontrolling interests)
2009 2010 Harrison income $220,000 $260,000 Starr income 70,000 90,000 Excess fair value amortization (8,000) (8,000) Consolidated net income $282,000 $342,000
Starr fair value $1,200,000 Fair value of consideration transferred 1,125,000 Noncontrolling interest fair value $75,000
Noncontrolling interest fair value January 1, 2009 (above) $75,000
2009 income to NCI ([$70,000 – $8,000] × 10%) 6,200
2009 dividends to NCI (3,000) Noncontrolling interest reported value December 31, 2009 78,200
2010 income to NCI ([$90,000 – $8,000] × 10%) 8,200
2010 dividends to NCI (3,000) Noncontrolling interest reported value December 31, 2010 $83,400
Trang 1021 (40 minutes) (Several valuation and income determination questions for a business combination involving a noncontrolling interest.)
a Business combinations are recorded generally at the fair value of the
consideration transferred by the acquiring firm plus the acquisition-date fair value of the noncontrolling interest
Patterson’s consideration transferred ($31.25 × 80,000 shares) $2,500,000 Noncontrolling interest fair value ($30.00 × 20,000 shares) $600,000 Soriano’s total fair value 1/1/09 $3,100,000
b Each identifiable asset acquired and liability assumed in a business
combination should initially be reported at its acquisition-date fair value
c In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at their acquisition-date fair values adjusted for amortization and depreciation Except for certain financial items, they are not continually
adjusted for changing fair values
d Soriano’s total fair value 1/1/09 $3,100,000 Soriano’s net assets book value 1,290,000 Excess acquisition-date fair value over book value $1,810,000 Adjustments from book to fair values
Buildings and equipment (250,000)
Trademarks 200,000
Patented technology 1,060,000
Unpatented technology 600,000 1,610,000 Goodwill $ 200,000
e Combined revenues $4,400,000 Combined expenses (2,350,000) Building and equipment excess depreciation 50,000 Trademark excess amortization (20,000) Patented technology amortization (265,000) Unpatented technology amortization (200,000) Consolidated net income $1,615,000
To noncontrolling interest:
Soriano’s revenues $1,400,000 Soriano’s expenses (600,000) Total excess amortization expenses (above) (435,000) Soriano’s adjusted net income $365,000 Noncontrolling interest percentage ownership 20% Noncontrolling interest share of consolidated net income $73,000
Trang 11To controlling interest:
Consolidated net income $1,615,000 Noncontrolling interest share of consolidated net income (73,000) Controlling interest share of consolidated net income $1,542,000
-OR-
Patterson’s revenues $3,000,000 Patterson’s expenses 1,750,000 Patterson’s separate net income $1,250,000 Patterson’s share of Soriano’s adjusted net income
(80% × $365,000) 292,000 Controlling interest share of consolidated net income $1,542,000
f Fair value of noncontrolling interest January 1, 2009 $600,000
2009 income 73,000 Dividends (20% × $30,000) (6,000) Noncontrolling interest December 31, 2009 $ 667,000
g If Soriano’s acquisition-date total fair value was $2,250,000, then a bargain purchase has occurred
Soriano’s total fair value 1/1/09 $2,250,000 Collective fair values of Soriano’s net assets $2,300,000 Bargain purchase $50,000
The acquisition method requires that the subsidiary assets acquired and
liabilities assumed be recognized at their acquisition date fair values
regardless of the assessed fair value Therefore, none of Soriano’s identifiable assets and liabilities would change as a result of the assessed fair value
When a bargain purchase occurs, however, no goodwill is recognized
Trang 1222 (20 Minutes) (Determine consolidated income balances, includes a mid-year acquisition)
a Acquisition-date total fair value $594,000
Book value of net assets (400,000)
Fair value in excess of book value $194,000 Annual Excess
Patent 140,000 5 years $28,000 Land 10,000
Buildings 30,000 10 years 3,000 Goodwill 14,000
Total -0- $31,000
Consolidated figures following January 1 acquisition date:
Combined revenues $1,500,000 Combined expenses (1,031,000) Consolidated net income 469,000 NCI in Sawyer’s income ([200,000 – 31,000] × 30%) (50,700) Controlling interest in consolidated net income $418,300
b Consolidated figures following April 1 acquisition date:
Combined revenues (1) $1,350,000 Combined expenses (2) (923,250) Consolidated net income $426,750 Noncontrolling interest in subsidiary income (3) (38,025) Controlling interest in consolidated net income $388,725
(1) $900,000 Parker revenues plus $450,000 of post-acquisition Sawyer revenues
(2) $600,000 Parker expenses plus $300,000 of post-acquisition Sawyer expenses
plus $23,250 amortization expenses for 9 months
(3) ($200,000 – 31,000) adjusted subsidiary income × 30% × ¾ year
Trang 1323 (15 minutes) Consolidated figures with noncontrolling interest
Fair value of company (given) $60,000
Fair value in excess of book value 50,000
to machine ($50,000 – $10,000) 40,000 ÷ 10 = $4,000 per year
to process trade secret $10,000 ÷ 4 = 2,500 per year
Consolidated figures:
Noncontrolling interest in subsidiary income
= 40% ($50,000 revenues less $26,500 expenses) = $9,400
End-of-year noncontrolling interest:
Beginning balance (40% $60,000) $24,000
Dividend reduction (40% $5,000) (2,000) End-of-year noncontrolling interest $31,400
Machine (net) = $45,000 ($9,000 book value plus $40,000 excess
allocation less $4,000 excess depreciation for one year)
Process trade secret (net) = $10,000 – $2,500 = $7,500
24 (20 Minutes) (Determine consolidated balances for a step acquisition)
a Amsterdam fair value implied by price paid by Morey
b Revaluation gain
1/1 equity investment in Amsterdam (book value) $178,000
c Goodwill at 12/31
Book value at 6/30 (700,000 + [70,000 ÷ 2]) 735,000
Allocation to goodwill (no impairment) $65,000
Trang 1425 (30 Minutes) (Reporting the sale of a portion of an investment in a subsidiary.)
a The 1,000 shares sold are reported using the equity method for the January 1, 2011 until October 1, 2011 period This stock represents 10 percent of the outstanding shares of Santana An accrual of $9,000 is recorded by Girardi (10% × $120,000 × ¾ year) reduced by $1,500 in amortization expense as computed below Therefore, an "Equity Income from Sold Shares of Santana" in the amount of $7,500 will appear in the
2011 consolidated income statement The consolidation will now
include all of Santana's accounts with the 40% noncontrolling interest recognized
Santana fair value 1/1/09 $1,100,000
Santana book value (1,030,000)
Shares sold—1,000 out of 7,000 1/7
Amortization relating to sold shares $1,500
b As long as control is maintained, the acquisition method considers transactions in the stock of a subsidiary, whether purchases or sales,
as transactions in the equity of the consolidated entity
Investment Book Value 10/1/11
1/1/11 balance (given—equity method) $1,085,000
Recognition of 1/1/11–10/1/11 period:
Income accrual ($120,000 × 70% × ¾) 63,000 Dividends ($40,000 × 70% × ¾) (21,000) Amortization ($14,000 × ¾) (10,500) Correct investment book value—10/1/11 $1,116,500
Computation of Income Effect—Sales Transaction
10/1/11 book value (above) $1,116,500
Portion of investment sold (1,000/7,000 shares) 1/7
Book value of investment sold $159,500
Proceeds 191,000
Credit to Girardi’s additional paid-in capital $ 31,500
Trang 15c Because Girardi continues to hold 6,000 shares of Santana, control is still maintained and consolidated financial statements would be
appropriate with a noncontrolling interest of 40 percent
26 (35 Minutes) (Consolidation entries and the effect of different investment
Entry A
Patent 18,000 Goodwill 190,000 Investment in Bandmor 145,600 Noncontrolling Interest in Bandmor (30%) 62,400 (To recognize unamortized portions of acquisition-date fair value allocations Patent has undergone two years amortization)
Entry I
Equity in Subsidiary Earnings 72,800 Investment in Bandmor 72,800 (To eliminate intercompany income balance Equity accrual of
$72,800 [70% × ($110,000 – 6,000 amortization)] has been recorded) Entry D
Investment in Bandmor 42,000 Dividends Paid 42,000 (To eliminate current intercompany dividend transfers—70% of
$60,000) Entry E
Amortization Expense 6,000 Patent 6,000 (To recognize amortization for current year)
Entry P
Accounts Payable 22,000 Accounts Receivable 22,000 (To eliminate intercompany payable/receivable balance)
Trang 1626 (continued)
b If the initial value method had been applied, the parent would have recorded only the dividends received as income rather than an equity accrual Therefore, Entry *C is needed to adjust the parent's beginning retained earnings for 2011 to the equity method During 2009 and 2010, the subsidiary earned a total net income of $171,000 but paid dividends
of only $83,000 The parent's share of the difference is $61,600 (70% of
$88,000 [$171,000 - $83,000]) In addition, the parent’s 70% share of excess amortization expense for two years must also be included
($8,400 = 2 years × $6,000 per year × 70%) The net amount to be
recognized is $53,200 ($61,600 - $8,400)
ENTRY *C
Investment in Bandmor 53,200 Retained Earnings, 1/1/11 53,200
c If the partial equity method had been applied, only the excess
amortization expenses for the previous two years would have been omitted from the parent's retained earnings As shown above, that
figure is $8,400 (2 years × $6,000 per year × 70%)
ENTRY *C
Retained Earnings, 1/1/11 8,400 Investment in Bandmor 8,400
d Noncontrolling interest in Bandmor's income—2011
–OR–
Worksheet adjustment S $170,400 Worksheet adjustment A $62,400
2009 income to noncontrolling interest 31,200
2009 dividends to noncontrolling interest (18,000) Noncontrolling interest in Bandmor 12/31/11 $246,000
Trang 1727 (45 Minutes) (Asks about several consolidated balances and consolidation
process Includes the different accounting methods to record investment.)
a Schedule 1 —Fair Value Allocation and Excess Amortizations
Consideration transferred by Miller $664,000
Noncontrolling interest fair value 166,000
Taylor’s fair value $830,000
Taylor’s book value (600,000)
Fair value in excess of book value 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000
20 years $4,000
Goodwill $150,000 indefinite -0- Total $4,000
b $150,000 (see schedule 1 above)
c Entry (S)
Common Stock (Taylor) 300,000
Additional Paid-in Capital (Taylor) 90,000
Retained Earnings (Taylor) 210,000
Investment in Taylor Company (80%) 480,000 Noncontrolling interest in Taylor (20%) 120,000
(2) Partial Equity Method
Trang 1827 (continued)
Partial Equity Method
Investment in Taylor—12/31/11 = $836,000 (initial value paid plus income accrual of $208,000 less dividends of $36,000 [no excess amortizations])
Initial Value Method
Investment in Taylor—12/31/11 = $664,000 (original value paid)
f Using the acquisition method, the allocation will be the total difference ($80,000) between the buildings' book value and fair value Based on a
20 year life, annual excess amortization is $4,000
Miller book value—buildings $800,000
Taylor book value—buildings 300,000
Allocation 80,000
Excess Amortizations for 2009–2010 ($4,000 × 2) (8,000)
Consolidated buildings account $1,172,000
g Acquisition-date fair value allocated to goodwill
(see schedule 1 above) $150,000
h If the parent has been applying the equity method, the stockholders' equity accounts on its books will already represent consolidated totals The common stock and additional paid-in capital figures to be reported are the parent balances only As to retained earnings, the equity method will properly record all subsidiary income and amortization so that the parent balance is also a reflection of the consolidated total
Trang 1928 (20 Minutes) (A variety of consolidated balances-midyear acquisition)
Book value of Reckers, 1/1
(stockholders' equity accounts) $1,400,000 Increase in book value:
Net Income (revenues less cost of goods sold and expenses) $120,000 Dividends (20,000) Change during year $100,000
Change during first six months of year 50,000 Book value of Reckers, 7/1 (acquisition date) $1,450,000 Consideration transferred by Kaplan $1,360,000
Noncontrolling interest fair value 300,000
Reckers’ fair value (given) $1,630,000
Book value of Reckers (1,450,000)
Fair value in excess of book value $180,000 Annual Excess Excess fair value assigned Life Amortizations
Trademarks 150,000 5 years $30,000 Goodwill $60,000 indefinite -0- Total $30,000 CONSOLIDATION TOTALS:
Noncontrolling Interest in sub Income (4) $9,000
(1) $800,000 Kaplan revenues plus $250,000 (post-acquisition subsidiary
revenue) (2) $400,000 Kaplan COGS plus $140,000 (post-acquisition subsidiary COGS) (3) $200,000 Kaplan operating expenses plus $50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of $15,000 (4) 20% of post-acquisition subsidiary income less excess fair value
amortization [20% × (120,000 – 30,000) × ½ year] = $9,000
Retained Earnings, 1/1 = $1,400,000 (the parent’s balance because the subsidiary was acquired during the current year)
Trademark = $935,000 (add the two book values and the excess fair
value allocation after taking one-half year excess amortization)
Goodwill = $60,000 (the original allocation)
Trang 2029 (25 Minutes) (A variety of consolidated questions and balances)
a Nascent applies the initial value method because the original price of
$414,000 is still in the Investment in Sea-Breeze account In addition, the Investment Income account is equal to 60 percent of the dividends paid
by the subsidiary during the year
b Consideration transferred in acquisition $414,000
Noncontrolling interest fair value 276,000
Sea-Breeze fair value 1/1/09 $690,000
Sea-Breeze book value 1/1/09 550,000
Excess fair value over book value $140,000
Life Amortizations
Buildings 60,000 6 years $10,000 Equipment (20,000) 4 years (5,000) Patent 100,000 10 years 10,000 Total -0- $15,000
c If the equity method had been applied, the Investment Income account would show the basic equity accrual less amortization: 60% of (the subsidiary's income of $90,000 less $15,000 excess fair value
amortization) = $45,000
d The initial value method recognizes neither the increase in the
subsidiary's book value nor the excess amortization expenses for prior years At the acquisition date, the subsidiary’s book value was $550,000
as indicated by the assets less liabilities At the beginning of the current year, the book value of the subsidiary is $780,000 as indicated by
beginning stockholders' equity balances
Increase in book value during prior years
($780,000 – $550,000) $230,000 Less excess amortization (45,000) Net increase in book value $185,000 Ownership 60% Increase required in parent's retained earnings, 1/1/12 $111,000 Parent's retained earnings, 1/1/12 as reported 700,000 Parent’s share of consolidated retained earnings, 1/1/12 $811,000
e Consolidated net income and allocation
Expenses (add book values and excess amortization) (635,000)
Noncontrolling interest in consolidated net income
Controlling interest in consolidated net income $235,000
Trang 2129 (continued)
f Consolidated buildings, 1/1/09 (subsidiary):
Book value $300,000 Acquisition-date fair-value allocation 60,000 Consolidation figure $360,000
g Consolidated buildings, 12/31/12:
Parent's book value $700,000 Subsidiary's book value 200,000 Original allocation 60,000 Amortization ($10,000 × 4 years) (40,000) Consolidated balance $920,000
Trang 2230 Acquisition Method Consolidated Balances
Fair value of Steele Company (1,710,000 ÷ 90%) $1,900,000
to customer base 800,000
Trang 2330 (Continued)
Controlling Noncontrolling Interest Interest
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base) 1,372,500 152,500
b If the fair value of the noncontrolling interest was $152,500, both goodwill and the noncontrolling interest balance would be reduced equally by $37,500 as
follows:
Fair value of Steele Company (1,710,000 + 152,500) $1,862,500
to customer base 800,000
Noncontrolling interest balance beginning of year $(157,500)
Noncontrolling interest in consolidated net income (13,500)
Controlling Noncontrolling Interest Interest
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base) 1,372,500 152,500
Trang 2431 (60 Minutes) (Consolidation worksheet and income statement with parent
using initial value method Also consolidated balances with a control
premium paid by parent.)
a Fair Value Allocation and Amortization
Consideration transferred by Krause $504,000
Noncontrolling interest fair value 126,000
Leahy total fair value 1/1/09 $630,000
Leahy book value 1/1/09 (380,000)
Fair value in excess of book value $250,000 Annual Excess
Life Amortizations
Excess price allocated to undervalued
Building 45,000 5 years $9,000 Trademark 60,000 10 years 6,000 Goodwill $145,000 $15,000
Explanation of Consolidation Entries Found on Worksheet
Entry *C: Convert the parent’s 1/1/10 retained earnings balance from the cash basis to the accrual basis
Entry S: Eliminates stockholders' equity accounts of subsidiary while recognizing noncontrolling interest balance (20%) as of the beginning of the current year
Entry A: Recognizes acquisition-date fair value allocations less 1 year amortization for building and trademark and increases beginning
balance of the noncontrolling interest for it’s share
Entry I: Eliminates Intercompany dividend payments recorded as income
by parent
Entry E: Recognizes amortization expense for current year
Columnar Entry—Recognizes noncontrolling interest's share of
subsidiary's net income ($90,000 – 15,000) × 20%)