On January 1, 2017, Parent Co., acquired 100 percent of the common stock of Sub Co for
Question:
- On January 1, 2017, Parent Co., acquired 100 percent of the common stock of Sub Co for $1,000,000 in cash. At that time, the building which had a remaining life of 20 years and was undervalued by 200,000 and they had a patent not recorded on their books of 100,000 with a remaining life of 10 years. Below is the relevant information for Parent Co. and Sub Co.
Parent Co 12/31/18 | Sub Co 12/31/16 | Sub Co 13/31/17 | Sub Co 13/31/18 | |
Revenues | -1,000,000 | -400,000 | -450,000 | -500,000 |
Cost of goods sold | 400,000 | 120,000 | 135,000 | 150,000 |
Depreciation expense | 100,000 | 80,000 | 80,000 | 80,000 |
Amortization expense | 100,000 | - | - | - |
Investment income from Sub Co | -250,000 | - | - | - |
Net income | -650,000 | -200,000 | -235,000 | -270,000 |
Retained earnings Begin | -1,000,000 | -250,000 | -400,000 | -400,000 |
Net income | -650,000 | -200,000 | -235,000 | -270,000 |
Dividends paid | 200,000 | 50,000 | 235,000 | 270,000 |
Retained earnings Ending | -1,450,000 | -400,000 | -400,000 | -400,000 |
Current assets | 240,000 | 100,000 | 130,000 | 160,000 |
Investment in Sub Co | 960,000 | 0 | 0 | 0 |
Building (net) | 3,000,000 | 450,000 | 420,000 | 390,000 |
Trademark | 400,000 | 100,000 | 100,000 | 100,000 |
Patent | 100,000 | 0 | 0 | 0 |
Goodwill | 0 | 0 | 0 | 0 |
Total assets | 4,700,000 | 650,000 | 650,000 | 650,000 |
Liabilities | -300,000 | -50,000 | -50,000 | -50,000 |
Common stock | -100,000 | -100,000 | -100,000 | -100,000 |
Additional paid-in capital | -2,850,000 | -100,000 | -100,000 | -100,000 |
Retained earnings 12/31/13 | -1,450,000 | -400,000 | -400,000 | -400,000 |
Total liabilities and equity | -4,700,000 | -650,000 | -650,000 | -650,000 |
a. Calculate the Book value
b. Calculate the amount of goodwill and excess consideration over fair value allocation on the acquisition date if any.
c. Prepare a consolidation worksheet for this business combination using the provided worksheet for the year ended 12/31/2018.
Fundamentals of Advanced Accounting
ISBN: 978-1259722639
7th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik