Priya Corporation acquired 100 percent of Sheldon Company stock on January 1, 2019 for $734,000 cash....

  
 
 
 

Transcribed Image Text:

Priya Corporation acquired 100 percent of Sheldon Company stock on January 1, 2019 for $734,000 cash. Following are trial balances of Priya Corporation and Sheldon Company as of December 31, 2019: PRIYA CORPORATION SHELDON COMPANY Debit Credit Debit Credit Cash %24 719,600 $ 211,800 Accounts Receivable 294,000 141,600 473,000 I 162,000 Inventory Investment in Sheldon Corp. 802,700 Buildings 636,000 346,000 Land 790,000 225,000 Equipment 531,000 247,000 Cost of Goods Sold 382,000 176,000 Depreciation Expense, Building 63,600 16,800 53,100 Depreciation Expense, Equipment Selling & Administrative Expense 31,200 193,400 115,400 Dividends Declared 60,000 40,000 Accumulated Depreciation, Bldg Accumulated Depreciation, Equip Accounts Payable Bonds Payable Common Stock ($1 par) Additional Paid In Capital Retained Earnings (01/01/2019) 190,800 117,600 318,600 187,200 178,000 165,800 109,200 500,000 600,000 210,000 1,482,700 175,000 809,000 264,000 Sales 810,600 484,000 Income from Sheldon Corp. 108,700 4,998,400 $ 4,998,400 1,712,800 $ 1,712,800 53,100 Depreciation Expense, Equipment Selling & Administrative Expense Dividends Declared 115,400 193,400 40,000 60,000 190,800 318,600 117,600 187,200 Accumulated Depreciation, Bldg Accumulated Depreciation, Equip 165,800 178,000 Accounts Payable Bonds Payable 109,200 500,000 600,000 210,000 Common Stock ($1 par) Additional Paid In Capital Retained Earnings (01/01/2019) 175,000 1,482,700 809,000 264,000 484,000 810,600 Sales 108,700 Income from Sheldon Corp. 4,998,400 $ 4,998,400 $4 1,712,800 $ 1,712,800 Additional Information: 1. On lanuary 1, 2019 the fair market value of Sheldon's assets equaled their book value with the exception of: Inventory - was undervalued by $21,000 (all of this inventory was sold during 2019). Building - was overvalued by $9,000 (remaining useful life was estimated to be 9 years). Land - was by overvalued $25,000. Equipment - was undervalued by $37,000 (remaining useful life was estimated to be 10 years). The new Goodwill from the acquisition was impaired by $12,200 at year-end. 2. Priya Corporation uses the (full) equity method to account for its Investment in Sheldon Company. 3. The general ledger numbers given above (HINT: those in boldface) include the effects of the JOURNAL ENTRIES that were recorded by Priya at the acquisition date and during 2019 to account for its investment in Sheldon Company. These boldface figures should be used a check figures in your solution. 24 Required: (CLEARLY SHOW ALL OF YOUR WORK). a. Analyze the Investment in Sheldon account as of the acquisition date. Determine the total "differential" and then break this amount out into the excess cost detail and (new) goodwill components. (10 POINTS) PLEASE BE SURE TO CLEARLY LABEL YOUR DETAIL FOR THE IDENTIFIABLE EXCESS, INCLUDING THE ASSET NAME AND WHETHER THE ASSET IS UNDERVALUED OR OVERVALUED. 734,000 Fair Value of Consideration given from Priya Company to Sheldon's Shareholders: Fair Value of Any Noncontrolling Interest 734,000 Total Fair Value %3D Book Value of Sheldon Company's Net Identifiable Assets $4 649,000 Differential (= Excess Value) 2$ 85,000 Identifiable Excess (6 POINTS) undervalued inventory by (21,000) undervalued equipment by (37,000) overvalued building by 9,000 overvalued land by 25,000 NET IDENTIFIABLE EXCESS 24,000 New Goodwill 61,000 b. Recreate the 4 JOURNAL ENTRIES recorded by Priya with regard to its investment in Sheldon Company at January 1, 2019 and during 2019. PLEASE BE SURE TO SHOW YOUR WORK FOR THE NUMBERS INCLUDED IN THE AMORTIZATION OF EXCESS VALUE JOURNAL ENTRY. THAT WORK IS WORTH 4 POINTS. (10 POINTS) EXCESS COST (OVERVALUED) OR UNDERVALUED "AMORTIZATION THE RELATED EXPENSE ACCOUNT ASSET LIFE AMOUNT c. Using your information from b. above, calculate the 12/31/19 balances for Priya Company's Investment in Sheldon and Income from Sheldon accounts. Use the T accounts provided below. (4 POINTS) Priya Company's General Ledger Investment in Sheldon Income from Sheldon Cash Income from Sheldon 2 c. Using your information from b. above, calculate the 12/31/19 balances for Priya Company's Investment in Sheldon and Income from Sheldon accounts. Use the T accounts provided below. (4 POINTS) Priya Company's General Ledger Investment in Sheldon Income from Sheldon Cash Income from Sheldon 2 d. Prepare the 3 REQUIRED CONSOLIDATION WORKSHEET ENTRIES (BCE, AEVRE, & EVRE) ot December 31, 2019. (28 POINTS) PLEASE BE SURE TO SHOW ALL OF YOUR CALCULATIONS IN ORDER TO CT FULL CREDIT FOR YOUR ANSWERS. BASIC CONSOLIDATION ENTRY (3 POINTS): AMORTIZATION OF EXCESS VALUE RECLASSIFICATION ENTRY (11 POINTS): Priya Corporation acquired 100 percent of Sheldon Company stock on January 1, 2019 for $734,000 cash. Following are trial balances of Priya Corporation and Sheldon Company as of December 31, 2019: PRIYA CORPORATION SHELDON COMPANY Debit Credit Debit Credit Cash %24 719,600 $ 211,800 Accounts Receivable 294,000 141,600 473,000 I 162,000 Inventory Investment in Sheldon Corp. 802,700 Buildings 636,000 346,000 Land 790,000 225,000 Equipment 531,000 247,000 Cost of Goods Sold 382,000 176,000 Depreciation Expense, Building 63,600 16,800 53,100 Depreciation Expense, Equipment Selling & Administrative Expense 31,200 193,400 115,400 Dividends Declared 60,000 40,000 Accumulated Depreciation, Bldg Accumulated Depreciation, Equip Accounts Payable Bonds Payable Common Stock ($1 par) Additional Paid In Capital Retained Earnings (01/01/2019) 190,800 117,600 318,600 187,200 178,000 165,800 109,200 500,000 600,000 210,000 1,482,700 175,000 809,000 264,000 Sales 810,600 484,000 Income from Sheldon Corp. 108,700 4,998,400 $ 4,998,400 1,712,800 $ 1,712,800 53,100 Depreciation Expense, Equipment Selling & Administrative Expense Dividends Declared 115,400 193,400 40,000 60,000 190,800 318,600 117,600 187,200 Accumulated Depreciation, Bldg Accumulated Depreciation, Equip 165,800 178,000 Accounts Payable Bonds Payable 109,200 500,000 600,000 210,000 Common Stock ($1 par) Additional Paid In Capital Retained Earnings (01/01/2019) 175,000 1,482,700 809,000 264,000 484,000 810,600 Sales 108,700 Income from Sheldon Corp. 4,998,400 $ 4,998,400 $4 1,712,800 $ 1,712,800 Additional Information: 1. On lanuary 1, 2019 the fair market value of Sheldon's assets equaled their book value with the exception of: Inventory - was undervalued by $21,000 (all of this inventory was sold during 2019). Building - was overvalued by $9,000 (remaining useful life was estimated to be 9 years). Land - was by overvalued $25,000. Equipment - was undervalued by $37,000 (remaining useful life was estimated to be 10 years). The new Goodwill from the acquisition was impaired by $12,200 at year-end. 2. Priya Corporation uses the (full) equity method to account for its Investment in Sheldon Company. 3. The general ledger numbers given above (HINT: those in boldface) include the effects of the JOURNAL ENTRIES that were recorded by Priya at the acquisition date and during 2019 to account for its investment in Sheldon Company. These boldface figures should be used a check figures in your solution. 24 Required: (CLEARLY SHOW ALL OF YOUR WORK). a. Analyze the Investment in Sheldon account as of the acquisition date. Determine the total "differential" and then break this amount out into the excess cost detail and (new) goodwill components. (10 POINTS) PLEASE BE SURE TO CLEARLY LABEL YOUR DETAIL FOR THE IDENTIFIABLE EXCESS, INCLUDING THE ASSET NAME AND WHETHER THE ASSET IS UNDERVALUED OR OVERVALUED. 734,000 Fair Value of Consideration given from Priya Company to Sheldon's Shareholders: Fair Value of Any Noncontrolling Interest 734,000 Total Fair Value %3D Book Value of Sheldon Company's Net Identifiable Assets $4 649,000 Differential (= Excess Value) 2$ 85,000 Identifiable Excess (6 POINTS) undervalued inventory by (21,000) undervalued equipment by (37,000) overvalued building by 9,000 overvalued land by 25,000 NET IDENTIFIABLE EXCESS 24,000 New Goodwill 61,000 b. Recreate the 4 JOURNAL ENTRIES recorded by Priya with regard to its investment in Sheldon Company at January 1, 2019 and during 2019. PLEASE BE SURE TO SHOW YOUR WORK FOR THE NUMBERS INCLUDED IN THE AMORTIZATION OF EXCESS VALUE JOURNAL ENTRY. THAT WORK IS WORTH 4 POINTS. (10 POINTS) EXCESS COST (OVERVALUED) OR UNDERVALUED "AMORTIZATION THE RELATED EXPENSE ACCOUNT ASSET LIFE AMOUNT c. Using your information from b. above, calculate the 12/31/19 balances for Priya Company's Investment in Sheldon and Income from Sheldon accounts. Use the T accounts provided below. (4 POINTS) Priya Company's General Ledger Investment in Sheldon Income from Sheldon Cash Income from Sheldon 2 c. Using your information from b. above, calculate the 12/31/19 balances for Priya Company's Investment in Sheldon and Income from Sheldon accounts. Use the T accounts provided below. (4 POINTS) Priya Company's General Ledger Investment in Sheldon Income from Sheldon Cash Income from Sheldon 2 d. Prepare the 3 REQUIRED CONSOLIDATION WORKSHEET ENTRIES (BCE, AEVRE, & EVRE) ot December 31, 2019. (28 POINTS) PLEASE BE SURE TO SHOW ALL OF YOUR CALCULATIONS IN ORDER TO CT FULL CREDIT FOR YOUR ANSWERS. BASIC CONSOLIDATION ENTRY (3 POINTS): AMORTIZATION OF EXCESS VALUE RECLASSIFICATION ENTRY (11 POINTS):