Windsor Inc. purchased a controlling interest in LaSalle Inc. on January 1, 2020. On that date, LaSalle
Question:
Windsor Inc. purchased a controlling interest in LaSalle Inc. on January 1, 2020. On that date, LaSalle Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:
Inventory | $5,000 less than book value |
Equipment | $30,000 less than book value |
Patent | $24,000 greater than book value |
Bonds Payable | $5,000 less than book value |
The balance sheets of both companies, as of December 31, 2020, are disclosed below:
Windsor Inc. | LaSalle Inc. | |
Cash | $200,000 | $45,000 |
Accounts Receivable | $100,000 | $40,000 |
Inventory | $80,000 | $55,000 |
Equipment (net) | $220,000 | $100,000 |
Patent | $60,000 | |
Investment in Brand Y | $348,000 | |
Total Assets | $948,000 | $300,000 |
Current Liabilities | $480,000 | $53,000 |
Bonds Payable | $270,000 | $50,000 |
Common Shares | $100,000 | $180,000 |
Retained Earnings | $98,000 | $19,000 |
Total Liabilities and Equity | $948,000 | $300,000 |
The net incomes for Windsor and LaSalle for the year ended December 31, 2020, were $1,000 and $50,000 respectively. Windsor did not declare any dividends during the year. However, LaSalle paid and declared $51,000 in dividends in 2020 to make up for several years in which the company had never declared any dividends.
An impairment test conducted on December 31, 2020, revealed that Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition.
Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2025.
Windsor uses the Fair Value Enterprise Method to value the non-controlling interest in LaSalle on the acquisition date.
Required
Prepare Windsor's consolidated balance sheet as of December 31, 2020, assuming that Windsor purchased 80% of LaSalle for $350,000 and accounts for its investment using the equity method.
Advanced Accounting
ISBN: 978-1305084858
12th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng