- Supernova Company had the following summarized balance sheet on December 31, 20X1:
| Assets | $ | 200,000 | ||
| Accounts receivable……………………………… | ||||
| Inventory………………………………………. | 450,000 | |||
| Property and plant (net)…………………………. | 600,000 | |||
| Goodwill……………………………………….. | 150,000 | |||
| …………………………………………Total | $1,400,000 | |||
| ========== | ||||
| Liabilities and Equity | $ | 600,000 | ||
| Notes payable…………………………………… | ||||
| Common stock, $5 par…………………………….. | 300,000 | |||
| Paid-in capital in excess of par………………….. | 400,000 | |||
| Retained earnings……………………………….. | 100,000 | |||
| …………………………………………Total | $1,400,000 | |||
| ========== |
The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
Required:
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- Assume that Redstar Corporation purchases 100% of the common stock of Supernova Company for $1,800,000. What value will be assigned to the following accounts of the Supernova Company when preparing a consolidated balance sheet on December 31, 20X1?
| (1) | Inventory | _________ |
| (2) | Property and plant | _________ |
| (3) | Goodwill | _________ |
(4) Noncontrolling interest _________
- Prepare a supporting determination and distribution of excess schedule.
2-23
Chapter 2
- Saturn Company had the following summarized balance sheet on December 31, 20X1:
| Assets | $ | 180,000 | ||
| Accounts receivable……………………………… | ||||
| Inventory………………………………………. | 500,000 | |||
| Property and plant (net)…………………………. | 600,000 | |||
| Goodwill……………………………………….. | 120,000 | |||
| …………………………………………Total | $1,400,000 | |||
| ========== | ||||
| Liabilities and Equity | $ | 600,000 | ||
| Notes payable…………………………………… | ||||
| Common stock, $5 par…………………………….. | 300,000 | |||
| Paid-in capital in excess of par………………….. | 400,000 | |||
| Retained earnings……………………………….. | 100,000 | |||
| …………………………………………Total | $1,400,000 | |||
| ========== |
The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
2-24
Chapter 2
Required:
- Assume that Return Corporation purchases 80% of the common stock of Saturn Company for $600,000. What value will be assigned to the following accounts of the Saturn Company when preparing a consolidated balance sheet on December 31, 20X1?
| (1) | Inventory | _________ |
| (2) | Property and plant | _________ |
| (3) | Goodwill | _________ |
(4) Noncontrolling interest _________
- Prepare a supporting determination and distribution of excess schedule.
2-25
Chapter 2
- Pluto purchased 100% of the common stock of the Saturn Company for $325,000 when Saturn had the following balance sheet:
| Assets | $ 50,000 | |
| Current assets………………………………….. | ||
| Inventory………………………………………. | 60,000 | |
| Property and plant………………………………. | 300,000 | |
| Accumulated depreciation…………………………. | (110,000) | |
| Total………………………………………… | $ 300,000 | |
| ========= | ||
| Liabilities and Equity | $ 50,000 | |
| Current liabilities……………………………… | ||
| Common stock, $5 par…………………………….. | 100,000 | |
| Pain-in capital in excess of par………………….. | 50,000 | |
| Retained earnings……………………………….. | 100,000 | |
| Total………………………………………… | $300,000 | |
| ======== |
The fair value of the plant is $250,000.
The purchase is a tax free exchange as to the seller; thus, the purchaser will be able to depreciate only the book value of the assets purchased. The applicable tax rate is 30%.
Required:
- At what amount will the following accounts be listed on the consolidated balance sheet prepared on the date of purchase?
| (1) | Inventory | _________ |
| (2) | Property and plant | _________ |
| (3) | Deferred tax liability | _________ |
| (4) | Goodwill | _________ |
17.Prepare a supporting determination and distribution of excess schedule.
2-26
Chapter 2
- Fortuna Company issued 51,500 shares of $1 par stock, with a fair value of $21 per share, for 80% of the outstanding shares of Acappella Company. The firms had the following separate balance sheets prior to the acquisition:
………………………..
| Assets | Fortuna | Acappella | ||||
| Current assets | $ | |||||
| $2,100,000 | 960,000 | |||||
| Property, plant, and equipment (net)…….. | 4,600,000 | 1,300,000 | ||||
| Goodwill…………………………….. | 240,000 | |||||
| ………………………….Totalassets | $6,700,000 | $2,500,000 | ||||
| ========== | ========== | |||||
| Liabilities and Stockholders’ Equity | $ | 800,000 | ||||
| Liabilities………………………….. | $3,000,000 | |||||
| Common stock ($1 par)…………………. | 800,000 | 200,000 | ||||
| Common stock ($5 par)…………………. | 2,200,000 | |||||
| Paid-in capital in excess of par……….. | 300,000 | |||||
| Retained earnings…………………….. | 700,000 | 1,200,000 | ||||
| ……………Totalliabilitiesandequity | $6,700,000 | $2,500,000 | ||||
| ========== | ========== |
Book values equal fair values for the assets and liabilities of Acappella Company, except for the property, plant, and equipment, which has a fair value of $1,600,000.
2-27
Chapter 2
Required:
- Prepare a determination and distribution of excess schedule.
- Provide all eliminations on the partial balance sheet worksheet provided in Figure 2-8 and complete the noncontrolling interest column.
ESSAY
- Historically the SEC and the FASB have considered majority ownership to define control as a necessary condition prior to preparing consolidating financial statements. Now, both of these organizations are considering a change in the definition of control.
Discuss the historical perspective on consolidation and now under what situations control would be considered appropriate without majority ownership. In your response describe the function of consolidated financial statements.
2-28
Chapter 2
- iscuss the conditions under which the FASB would assume a presumption of control. Additionally, under what circumstances might the FASB require consolidation even though the parent does not control the subsidiary?
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- A parent company purchases an 80% interest in a subsidiary at a price high enough to revalue all assets and allow for goodwill on the interest purchased. If “push down accounting” were used in conjunction with the “economic entity concept,” what unique procedures would be used that are not normally used for such an 80% purchase?
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