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Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $585,000195,000780,000.

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Presentation on theme: "Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $585,000195,000780,000."— Presentation transcript:

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2 Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $585,000195,000780,000 * Less: Book value of equity acquired450,000150,000600,000 Difference (IV&BV)135,00045,000180,000 Equipment ($705,000 – $525,000)(135,000)(45,000)(180,000) Balance Part AEquipment 180,000 Difference between Implied and Book Value180,000 Depreciation Expense ($180,000/10)18,000 Accumulated Depreciation18,000

3 Part B Allocated to Equipment = ÷10/15 = 270,000 Allocated to Accumulated Depreciation = 270,000 * 5/15= 90,000 Equipment 270,000 Accumulated Depreciation 90,000 Difference (IV&BV) 180,000 Depreciation Expense ($180,000/10)18,000 Accumulated Depreciation 18,000

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5 Part BComputation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $525,000131,250656,250 * Less: Book value of equity acquired480,000120,000600,000 Difference between implied and book value45,00011,25056,250 Inventory(16,000)(4,000)(20,000) Marketable Securities(20,000)(5,000)(25,000) Plant and Equipment(24,000)(6,000)(30,000) Balance(excess of FV over implied value)(15,000)(3,750)(18,750) Gain15,000 Increase Noncontrolling interest to fair value of assets3,750 Total allocated bargain 18,750 Balance Exercise 5-3 Part AInvestment in Saddler Corporation 525,000 Cash 525,000

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7 Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $260,00065,000325,000 * Less: Book value of equity acquired270,00067,500337,500 Difference between implied and book value(10,000)(2,500)(12,500) Inventory(4,000)(1,000)(5,000) Current Assets(4,000)(1,000)(5,000) Equipment (net)(40,000)(10,000)(50,000) Balance(excess of FV over implied value)(58,000)(14,500)(72,500) Gain58,000 Increase Noncontrolling interest to fair value of assets14,500 Total allocated bargain 72,500 Balance

8 Part B (1 )Common Stock 207,000 Beginning Retained Earnings- 130,500 Difference (IV&BV) 12,500 Investment in Salem Company 260,000 Noncontrolling interest 65,000 (2)Difference (IV&BV)12,500 Inventory5,000 Current Assets5,000 Equipment (net)50,000 Gain on acquisition 58,000 Noncontrolling interest 14,500

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10 Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $2,000,000500,000 2,500,000 * Less: Book value of equity acquired1,760,000440,000 2,200,000 Difference between (IV&BV)240,00060, ,000 Land ($100,000 – $ 80,000)(16,000)(4,000) (20,000) Premium on Bonds Payable a 31,9417,985 39,926 Balance255,94163, ,926 Goodwill(255,941)(63,985) (319,926) Balance a Present Value on 1/1/2010 of 10% Bonds Payable Discounted at 8% over 5 periods Principal ($500,000 * ) $340,290 Interest ($50,000 * ) 199,636 Fair value of bond $539,926 Face value of bond 500,000 Bond premium 39,926

11 Land20,000 Goodwill319,926 Unamortized Premium on Bonds Payable39,926 Difference between (IV&BV) 300,000 Unamortized Premium on Bonds Payable 6,806 Interest Expense ($50,000 – ($539,926 * 0.08))6,806 a Effective Interest (($539,926 * 0.08) $(43,194) Nominal Interest (0.10 * $500,000) 50,000 Difference $6806

12 Exercise 5-10

13 Part A Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $3,500,000388,8893,888,889 * Less: Book value of equity acquired3,150,000350,0003,500,000 Difference between (IV&BV)350,00038,889388,889 Land ($200,000 - $ 120,000)(72,000)(8,000)(80,000) Premium on Bonds Payable a 56,8676,31963,186 Balance334,86737,208372,075 Goodwill(334,867)(37,208)(372,075) Balance a Present Value on 1/2/2007 of 9% Bonds Payable Discounted at 6% for 5 periods Principal ($500,000 * ) $373,630 Interest ($45,000 * ) 189,556 Fair value of bond$563,186 Face value of bond 500,000 Premium on bond payable 63,186

14 Land80,000 Goodwill372,075 Unamortized Premium on Bonds Payable63,186 Difference between(IV&BV) 388,889 Unamortized Premium on Bonds Payable 11,209 Interest Expense 11,209 a a Effective Interest (0.06 *$563,186) $(33,791) Nominal Interest (0.09 * $500,000) 45,000 Difference 11,209

15 Exercise 5-11

16 Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $2,276,000569,0002,845,000 * Less: Book value of equity acquired2,000,000500,0002,500,000 Difference (IV&BV) 276,000 69,000345,000 Inventory(36,000)(9,000)(45,000) Equipment(40,000)(10,000)(50,000) Balance200,00050,000250,000 Goodwill(200,000)(50,000)(250,000) Balance Part 1 – Cost Method 2010 (1)Dividend Income 16,000 Dividends Declared (0.80 ×$20,000)16,000 To eliminate intercompany dividends

17 2)Beginning Retained Earnings700,000 Capital Stock1,800,000 Difference between Implied and Book Value345,000 Investment in Sand Company2,276,000 Noncontrolling interest569,000 (3)Cost of Goods Sold (Beginning Inventory)45,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV)345,000 (4)Depreciation Expense ($50,000/8)6,250 Equipment (net)6,250

18 2011 (1)Investment in Sand Company ($80,000 ×0.80)64,000 Beginning Retained Earnings 64,000 To establish reciprocity/convert to equity method as of 1/1/2008 (2)Dividend Income ($30,000 * 0.80)24,000 Dividends Declared24,000 To eliminate intercompany dividends (3)Beginning Retained Earnings ($700,000 + $100,000 – $20,000)780,000 Capital Stock1,800,000 Difference between Implied and Book Value345,000 Investment in Sand Company ($2,276,000 + $64,000)2,340,000 NCI ($569, )585,000

19 (4)Beginning Retained Earnings-Piper Company36,000 Noncontrolling Interest9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between Implied and Book Value345,000 (5) Beginning Retained Earnings-Piper Company5,000 Noncontrolling Interest1,250 Depreciation Expense ($50,000/8)6,250 Equipment (net) 12,500

20 2012 (1)Investment in Sand Company ($200,000 *0.80)160,000 Beginning Retained Earnings-Piper Company160,000 To establish reciprocity/convert to equity method as of 1/1/2009 (2)Dividend Income ($15,000 * 0.80) 12,000 Dividends Declared 12,000 To eliminate intercompany dividends (3)Beginning Retained Earnings($780,000 + $150,000 – $30,000)900,000 Common Stock- Sand Company1,800,000 Difference between Implied and Book Value345,000 Investment ($2,276,000 + $160,000) 2,436,000 NCI ($569,000 + ($900,000 – $700,000) x 0.20) 609,000 To eliminate investment account and create noncontrolling interest account

21 (4)Beginning Retained Earnings-Piper Company36,000 Noncontrolling Interest9,000 Equipment (net) 50,000 Goodwill 250,000 Difference between (IV&BV)345,000 (5)Beginning Retained Earnings-Piper Company10,000 Noncontrolling Interest2,500 Depreciation Expense ($50,000/8)6,250 Equipment (net)18,750

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23 Computation and Allocation of Difference Schedule ParentNon-Entire ShareControllingValue Share Purchase price and implied value $3,750,000416,667 4,166,667 * Less: Book value of equity acquired3,600,000400,000 4,000,000 Difference between (IV&BV) 150,000 16,667166,667 Inventory(90,000)(10,000)(100,000) Land(360,000)(40,000)(400,000) Balance (excess of FV over implied value)(300,000)(33,333)(333,333) Gain300,000 Increase NCI to fair value of assets33,333 Total allocated bargain 333,333 Balance (1)Investment in Saxton Corporation225,000 Beginning Retained Earnings-Palm Inc.225,000 To establish reciprocity/convert to equity (0.90 *($1,250,000 – $1,000,000))

24 (2)Beginning Retained Earnings-Saxton Co.1/1/20121,250,000 Capital Stock- Saxton Co.3,000,000 Difference between Implied and Book Value166,667 Investment ($3,750,000 + $225,000)3,975,000 Noncontrolling Interest441,667 To eliminate the investment amount and create noncontrolling interest account (3)Beginning Retained Earnings-Palm Inc.90,000 Noncontrolling Interest10,000 Land400,000 Difference between (IV&BV)166,667 Gain on Acquisition300,000 Noncontrolling Interest33,333 To allocate and depreciate the difference between implied and book value


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