Consolidation Working Paper, Three Years After Acquisition (see related P3.2) Interna- tional Technology Inc. (ITI) acquired...

 

  

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Consolidation Working Paper, Three Years After Acquisition (see related P3.2) Interna- tional Technology Inc. (ITI) acquired all of the voting stock of Global Outsourcing Corporation (GOC) on June 30, 2015, for $110 million in cash and stock, plus an earnings contingency payable at the end of the third year with a fair value of $2 million at the date of acquisition. Within the measurement period, the earnings contingency declined to a fair value of zero and the acquisition price was appropriately adjusted. Both companies have a June 30 year-end. At June 30, 2015, GOC's total stockholders' equity was $40 million, as follows (in millions): < E cambridgepub.com/ereader/1529#page/167 Common stock, par Additional paid-in capital Retained earnings (deficit) Accumulated other comprehensive income. Treasury stock Total Property, plant and equipment, net Patents and trademarks. Advanced technology. Customer lists. Long-term debt cambridgepub.com (in millions) Current assets Property, plant and equipment, net Identifiable intangible assets Investment in GOC. Current liabilities. 4:15 PM Chapter 4 Long-term liabilities. Common stock, par Cost of goods sold. Operating expenses. Other comprehensive income Totals ● Additional paid-in capital Retained earnings, July 11 Accumulated other comprehensive income, July 1 Treasury stock Sales revenue. Equity in net income of GOC Equity in OCI of GOC At the acquisition date, GOC's inventories were undervalued by $5 million, its property, plant and equip- ment was overvalued by $60 million, its reported patents and trademarks were undervalued by $10 million, and its long-term debt was undervalued by $3 million. GOC also had previously unreported identifiable intangibles: $5 million of advanced technology and $25 million of customer lists. GOC re- ports its inventory using the LIFO method, and purchases exceed sales every year. The acquisition date remaining lives of its assets and liabilities are as follows: Google Drive - Cloud Storage & File Backup for Photos, Docs... Consolidated Financial Statements Subsequent to Acquisition The straight-line method is used for limited life assets. Impairment losses on the customer lists were $2 million in fiscal 2017 and $4 million in fiscal 2018. Goodwill impairment losses were $2 million in fiscal 2016, $3 million in fiscal 2017, and $2 million in fiscal 2018. GOC reported net income of $15 million in fiscal 2016, and a net loss of $2 million in fiscal 2017. Neither company pays dividends. ITI uses the complete equity method to account for its investment in GOC on its own books. The trial balances of ITI and GOC at June 30, 2018, are as follows: ITI $ 232 Auto Zoom 600 1,100 127 (175) (1,125) (22) (580) (118) Dr (Cr) (16) 8 (2,000) (7) (1) $0 1,400 580 $4 (3) 60 (25) 3 (2) $40 20 years 5 years 5 years Indefinite 3 years $0 GOC $12 140 30 (10) (105) (4) (60) 12 (4) 2 (900) 800 88 (1) Required Prepare a schedule that computes the June 30, 2018, investment in GOC balance and 2018 equity in net income on ITI's books. b. Use a working paper to consolidate the trial balances of ITI and GOC at June 30, 2018. C. Present the consolidated balance sheet at June 30, 2018, and the consolidated statement of compre- hensive income for 2018. 3% [ 167 167 + Consolidation Working Paper, Three Years After Acquisition (see related P3.2) Interna- tional Technology Inc. (ITI) acquired all of the voting stock of Global Outsourcing Corporation (GOC) on June 30, 2015, for $110 million in cash and stock, plus an earnings contingency payable at the end of the third year with a fair value of $2 million at the date of acquisition. Within the measurement period, the earnings contingency declined to a fair value of zero and the acquisition price was appropriately adjusted. Both companies have a June 30 year-end. At June 30, 2015, GOC's total stockholders' equity was $40 million, as follows (in millions): < E cambridgepub.com/ereader/1529#page/167 Common stock, par Additional paid-in capital Retained earnings (deficit) Accumulated other comprehensive income. Treasury stock Total Property, plant and equipment, net Patents and trademarks. Advanced technology. Customer lists. Long-term debt cambridgepub.com (in millions) Current assets Property, plant and equipment, net Identifiable intangible assets Investment in GOC. Current liabilities. 4:15 PM Chapter 4 Long-term liabilities. Common stock, par Cost of goods sold. Operating expenses. Other comprehensive income Totals ● Additional paid-in capital Retained earnings, July 11 Accumulated other comprehensive income, July 1 Treasury stock Sales revenue. Equity in net income of GOC Equity in OCI of GOC At the acquisition date, GOC's inventories were undervalued by $5 million, its property, plant and equip- ment was overvalued by $60 million, its reported patents and trademarks were undervalued by $10 million, and its long-term debt was undervalued by $3 million. GOC also had previously unreported identifiable intangibles: $5 million of advanced technology and $25 million of customer lists. GOC re- ports its inventory using the LIFO method, and purchases exceed sales every year. The acquisition date remaining lives of its assets and liabilities are as follows: Google Drive - Cloud Storage & File Backup for Photos, Docs... Consolidated Financial Statements Subsequent to Acquisition The straight-line method is used for limited life assets. Impairment losses on the customer lists were $2 million in fiscal 2017 and $4 million in fiscal 2018. Goodwill impairment losses were $2 million in fiscal 2016, $3 million in fiscal 2017, and $2 million in fiscal 2018. GOC reported net income of $15 million in fiscal 2016, and a net loss of $2 million in fiscal 2017. Neither company pays dividends. ITI uses the complete equity method to account for its investment in GOC on its own books. The trial balances of ITI and GOC at June 30, 2018, are as follows: ITI $ 232 Auto Zoom 600 1,100 127 (175) (1,125) (22) (580) (118) Dr (Cr) (16) 8 (2,000) (7) (1) $0 1,400 580 $4 (3) 60 (25) 3 (2) $40 20 years 5 years 5 years Indefinite 3 years $0 GOC $12 140 30 (10) (105) (4) (60) 12 (4) 2 (900) 800 88 (1) Required Prepare a schedule that computes the June 30, 2018, investment in GOC balance and 2018 equity in net income on ITI's books. b. Use a working paper to consolidate the trial balances of ITI and GOC at June 30, 2018. C. Present the consolidated balance sheet at June 30, 2018, and the consolidated statement of compre- hensive income for 2018. 3% [ 167 167 +

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ANSWER a Schedule to compute the June 30 2018 investment in GOC balance and 2018 equity in net incom... View the full answer