On January 1, 20x1 Pumpkin Corp. acquired 80% of Squash Corp. for $500,000 when Squash's stockholders'...

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On January 1, 20x1 Pumpkin Corp. acquired 80% of Squash Corp. for $500,000 when Squash's stockholders' equity consisted of $75,000 of common stock, $200,000 of additional paid in capital. and $200,000 of retained earnings. The assets and liabilities of Squash were at fair value except for inventory which was understated by $15,000, a building which was understated by $50,000 and a note payable which was overstated by $25,000. The inventory of Squash Corp. on January 1, 20x1 was sold during 20x1. On January 1, 20x1 the equipment had a remaining useful life of 10 years. The note payable was due in full 5 years from the date of the acquisition Squash Corp. typically declares and pays their dividends in April of a given year, if any. Squash reported the following net income and dividends in 20x1, 20x2 and 20x3: 20x1 20x2 20x3 Required: Pre-close trial balance information for Pumpkin Corp. prior to applying the equity method for the investment in Squash as of year-end and post-close trial balance information for Squash Corp. as of and for the year ended December 31, 20x3 are as follows: Cash and Cash Equivalents Accounts Receivable Inventories Property. Plant, & Equipment (net) Investment in Squash Accounts Payable Net Income $ 100,000 130.000 180,000 Other Current Liabilities Notes Payable and Other LT Debt Common Stock Dividends $ 20,000 50,000 80,000 APIC Retained Earnings (including current year earnings) Sales Cost of Sales Expenses Pumpkin $ 30,250 183,250 278,000 700,000 530,000 85,000 251,000 300,000 200,000 50,000 841,500 600,000 200,000 80,000 $ a.) Calculate the excess of fair value over book value, if any, and prepare an allocation worksheet. including the amortization of the excess by year Squash 80,000 100,000 195,000 535,000 40,000 55,000 80,000 75,000 200,000 460,000 500,000 270,000 50,000 b.) Since Pumpkin's stand-alone books and records would account for their investment in Squash using the equity method, prepare a roll-forward of the equity method investment in Squash Corp and the noncontrolling interest line item for use in Pumpkin's consolidating worksheet from the date of acquisition through December 31, 20x3. c.) Prepare a consolidating worksheet, including a consolidating balance sheet, income statement, and statement of retained earnings, for Pumpkin Corp. and Subsidiary as of and for the year ded December 31, 20x3. Make sure your worksheet includes an appropriate heading. On January 1, 20x1 Pumpkin Corp. acquired 80% of Squash Corp. for $500,000 when Squash's stockholders' equity consisted of $75,000 of common stock, $200,000 of additional paid in capital. and $200,000 of retained earnings. The assets and liabilities of Squash were at fair value except for inventory which was understated by $15,000, a building which was understated by $50,000 and a note payable which was overstated by $25,000. The inventory of Squash Corp. on January 1, 20x1 was sold during 20x1. On January 1, 20x1 the equipment had a remaining useful life of 10 years. The note payable was due in full 5 years from the date of the acquisition Squash Corp. typically declares and pays their dividends in April of a given year, if any. Squash reported the following net income and dividends in 20x1, 20x2 and 20x3: 20x1 20x2 20x3 Required: Pre-close trial balance information for Pumpkin Corp. prior to applying the equity method for the investment in Squash as of year-end and post-close trial balance information for Squash Corp. as of and for the year ended December 31, 20x3 are as follows: Cash and Cash Equivalents Accounts Receivable Inventories Property. Plant, & Equipment (net) Investment in Squash Accounts Payable Net Income $ 100,000 130.000 180,000 Other Current Liabilities Notes Payable and Other LT Debt Common Stock Dividends $ 20,000 50,000 80,000 APIC Retained Earnings (including current year earnings) Sales Cost of Sales Expenses Pumpkin $ 30,250 183,250 278,000 700,000 530,000 85,000 251,000 300,000 200,000 50,000 841,500 600,000 200,000 80,000 $ a.) Calculate the excess of fair value over book value, if any, and prepare an allocation worksheet. including the amortization of the excess by year Squash 80,000 100,000 195,000 535,000 40,000 55,000 80,000 75,000 200,000 460,000 500,000 270,000 50,000 b.) Since Pumpkin's stand-alone books and records would account for their investment in Squash using the equity method, prepare a roll-forward of the equity method investment in Squash Corp and the noncontrolling interest line item for use in Pumpkin's consolidating worksheet from the date of acquisition through December 31, 20x3. c.) Prepare a consolidating worksheet, including a consolidating balance sheet, income statement, and statement of retained earnings, for Pumpkin Corp. and Subsidiary as of and for the year ded December 31, 20x3. Make sure your worksheet includes an appropriate heading.

Answer rating: 100% (QA)

a To calculate the excess of fair value over book value we need to compare the fair value of Squash Corps identifiable net assets to their book value at the acquisition date The excess fair value will ... View the full answer