ACC 638 Business Combinations Spring 2018 Exam #2

PROBLEM #1

On January 1, 2013 Trump Company acquired 80% of Aramco Corporation's outstanding shares by paying $150,000 in cash. On that date, the fair value of the noncontrolling interest was $37,500 and Aramco reported retained earnings of $42,000 and had $98,000 of common stock outstanding. Trump has used the equity method in accounting for investment in Aramco. Trial balance data for the two companies on December 31, 2017 are as follows:

	Trump			Amarco
	Debit	Credit		Debit	Credit
Cash & Receivables	$ 85,000	$?		$ 70,000	$?
Inventory	270,000			92,000
Land	82,000			82,000
Buildings & Equipment	296,000			87,000
Investment in Amarco	185,720
Cost of Goods Sold	117,000			42,000
Depreciation Expense	20,000			10,000
Inventory Losses	10,000			6,000
Dividends Declared	42,000			19,600
Accounts Payable		55,000			19,000
Notes Payable		212,920			103,600
Common Stock		294,000			98,000
Retained Earnings		308,000			88,000
Sales		208,000			100,000
Income from Subsidiary		29,800
	$ 1,107,720	$ 1,107,720		$ 408,600	$ 408,600

Additional Information 1. Onthedateofcombination,thefairvalueofStanleysdepreciableassetswas$47,500morethanbook

value. The accumulated depreciation on these assets was $10,000 on the acquisition date. The differential assigned to depreciable assets should be written off over the following 10-year period.

2. There was $12,000 of intercorporate receivables and payables at the end of 2017. Required:

a) Prepare all equity method journal entries that Trump recorded during 2017 related to its investment in Amarco.

b) Prepare the consolidation entries