Ch04 6e Slutions Hoyle

CHAPTER 4
CONSOLIDATED FINANCIAL STATEMENTS

AND OUTSIDE OWNERSHIP
Chapter Outline
I. Outside ownership may be present within any business combination.
A. Complete ownership of a subsidiary is not a prerequisite for consolidation—only enough
voting shares need be owned so that the acquiring company has the ability to control
the decision-making process of the acquired company.
B. Any ownership interest in a subsidiary company by a party unrelated to the acquiring
company is termed a noncontrolling interest.
II. Valuation of subsidiary assets and liabilities poses a challenge when a noncontrolling
interest is present.
A. The accounting emphasis is placed on the entire entity that results from the business
combination when control has been obtained. The parent company that controls its
subsidiary must consolidate 100% of subsidiary assets, liabilities, revenues, and
expense are consolidated even when its ownership is less than 100%.
B. The consolidated valuation basis for a newly acquired subsidiary is the acquisition-date
fair value of the company (most frequently determined by the consideration transferred
and the fair value of the noncontrolling interest); specific subsidiary assets and liabilities
are measured at their acquisition-date fair values.
C. The noncontrolling interest balance is reported in the parent’s consolidated financial
statements as a component of stockholders' equity.
III. Consolidations involving a noncontrolling interest—subsequent to the date of acquisition

A. Four noncontrolling interest figures are determined for reporting purposes
1. Beginning of year balance sheet amount
2. Net income attributable to noncontrolling interest
3. Dividends declared by subsidiary during the period attributable to the noncontrolling
interest
4. End of year balance sheet amount
B. Noncontrolling interest balances are accumulated in a separate column in the
consolidation worksheet
1. The beginning of year figure is entered on the worksheet as a component of Entries
S and A
2. The net income attributable to the noncontrolling interest is established by a
columnar entry that simultaneously reports the balance in both the consolidated
income statement and the noncontrolling interest column
3. Dividends declared to these outside owners are reflected by extending the
subsidiary's Dividends declared balance (after eliminating intra-entity transfers) into
the noncontrolling interest column as a reduction
4. The end of year noncontrolling interest total is the summation of the three items
above and is reported in stockholders' equity.
IV. Step acquisitions
A. An acquiring company may make several different purchases of a subsidiary's stock in
order to gain control
B. Upon attaining control, all of the parent’s previous investments in the subsidiary are
adjusted to fair value and a gain or loss recognized as appropriate
C. Upon attaining control, the valuation basis for the subsidiary is established at its total
fair value (the sum of the fair values of the controlling and noncontrolling interests)
D. Post-control subsidiary stock acquisitions by the parent are considered transactions
with current owners of the consolidated entity. Thus such post-control stock acquisitions
neither result in gains or losses nor provide a basis for subsidiary asset remeasurement
to fair value. The difference between the sale proceeds and the carrying value of the
shares sold (equity method) is recorded as an adjustment to the parent’s additional paid
in capital.
V. Sales of subsidiary stock

A. The proper book value must be established within the parent's Investment account so
that the sales transaction can be correctly recorded
B. The investment balance is adjusted as if the equity method had been applied during the
entire period of ownership
C. If only a portion of the shares are being sold, the book value of the investment account
is reduced using either a FIFO or a weighted-average cost flow assumption
D. If the parent maintains control, any difference between the proceeds of the sale and the
equity-adjusted book value of the share sold is recognized as an adjustment to
additional paid-in capital.
E. If the parent loses control with the sale of the subsidiary shares, the difference between
the proceeds of the sale and the equity-adjusted book value of the share sold is
recognized as a gain or loss.
F. Any interest retained by the parent company should be accounted for by either
consolidation, the equity method, or the fair value method depending on the influence
remaining after the sale.
Answer to Discussion Question:

Do you think the FASB made the correct decision in requiring consolidated financial
statements to recognize all subsidiary’s assets and liabilities at fair value regardless
of the percentage ownership acquired by the parent?
As the quotes from the five accounting professionals illustrate, the decision to require the
revaluation of 100% of a newly controlled subsidiary’s assets and liabilities—regardless of
percentage ownership—was not without some controversy. Students can use the quotes
to discuss cost-benefit issues, relevance of capturing the underlying economics, use of
hypothetical transactions in financial reporting, potential for abuse, etc. The requirement
to value all acquisition date subsidiary assets at 100% fair value thus provides a useful
vehicle for the class to discuss the many issues surrounding standard setters’ decisions.
Answer to Discussion Question:
DOES GAAP UNDERVALUE POST-CONTROL STOCK ACQUISITIONS?
From the Berkshire Hathaway 2012 annual 10-K report:

We have owned a controlling interest in Marmon Holdings, Inc. (“Marmon”) since 2008. In the fourth
quarter of 2012, pursuant to the terms of the 2008 Marmon acquisition agreement, we acquired an
additional 10% of the outstanding shares of Marmon held by noncontrolling interests for aggregate
consideration of approximately $1.4 billion. Approximately $800 million of the consideration was paid
in the fourth quarter of 2012, and the remainder is payable in March 2013. In the fourth quarter of
2010, we acquired 16.6% of Marmon’s outstanding common stock for approximately $1.5 billion. As
a result of these acquisitions, our ownership interest in Marmon has increased to approximately
90%.
These purchases were accounted for as acquisitions of noncontrolling interests. The differences
between the consideration paid or payable and the carrying amounts of the noncontrolling interests
acquired were recorded as reductions in Berkshire’s shareholders equity of approximately $700
million in 2012 and $614 million in 2010. We are contractually required to acquire substantially all of
the remaining noncontrolling interests of Marmon no later than March 31, 2014, for an amount that
will be based on Marmon’s future operating results.
On the date control is established, the new subsidiary’s valuation basis is established.
Subsequent acquisitions of any remaining portions of the noncontrolling interests do not
establish a new valuation basis for the subsidiary. In the Berkshire case, the new valuation
basis for Marmon was established in 2008 when its 64% control was acquired. Berkshire
then increases Marmon’s consolidated carrying amount as Marmon earns income, not by
subsequent purchases of Marmon’s noncontrolling shares.
Berkshire’s payments for its post-control equity acquisitions (16% and 10%) were in
excess of Marmon’s proportionate carrying amounts. Because these transactions were
with owners (not outside parties), no gain or loss is recorded. Berkshire reduces its paid-in
capital the for excess of the purchase price over the carrying amount. The accounting is
similar to retirement of stock for a payment in excess of the company’s proportionate
carrying amount.
Mr.Buffett may be correct that the current market value of Marmon is $4.6 bilion more that
its carrying amount. However, GAAP does not, in general, record unrealized increases in
a firm’s market value as increases in reported asset amounts.
Answers to Questions
1. "Noncontrolling interest" refers to an equity interest that is held in a member of a business
combination by an unrelated (outside) party.
2. Acquisition method = $220,000 (fair value)
3. A control premium is the portion of an acquisition price (above currently traded market
values) paid by a parent company to induce shareholders to sell a sufficient number of
shares to obtain control. The extra payment typically becomes part of the goodwill acquired
in the acquisition attributable to the parent company.
4. Current accounting standards require the noncontrolling interest to appear in the
stockholders' equity section. The noncontrolling interest's share of the subsidiary’s net
income is shown as an allocated component of consolidated net income.
5. The ending noncontrolling interest is determined on a consolidation worksheet by adding
the four components found in the noncontrolling interest column: (1) the beginning balance
of the subsidiary’s book value, (2) the noncontrolling interest share of the adusted
acquisition-date excess fair over book value allocation, (3) its share of current year net
income, (4) less dividends declared to these outside owners.
6. Allsports should remove the pre-acquisition revenues and expenses from the consolidated
totals. These amounts were earned (incurred) prior to ownership by Allsports and therefore
should are not earnings for the current parent company owners.
7. Following the second acquisition, consolidation is appropriate. Once Tree gains control, the
10% previous ownership is included at fair value as part of the total consideration
transferred by Tree in the acquisition.
8. When a company sells a portion of an investment, it must remove the carrying value of that
portion from its investment account. The carrying value is based upon application of the
equity method. Thus, if either the initial value method or the partial equity method has been
used, Duke must first restate the account to the equity method before recording the sales
transaction. The same method is applied to the operations of the current period occurring
prior to the time of sale.
9. Unless control is surrendered, the acquisition method views the sale of subsidiary's stock
as a transaction with its owners. Thus, no gain or loss is recognized. The difference
between the sale proceeds and the carrying value of the shares sold (equity method) is
accounted for as an adjustment to the parent’s additional paid in capital.
10. The accounting method choice for the remaining shares depends upon the current
relationship between the two firms. If Duke retains control, consolidation is still required.
However, if the parent now can only significantly influence the decision-making process, the
equity method is applied. A third possibility is Duke may have lost the power to exercise
even significant influence. The fair value method then is appropriate.
Answers to Problems
1. C
2. A At the date control is obtained, the parent consolidates subsidiary assets at fair value
($549,000 in this case) regardless of the parent’s percentage ownership.
3. D In consolidating the subsidiary's figures, all intra-entity balances must be eliminated in

their entirety for external reporting purposes. Even though the subsidiary is less than
fully owned, the parent nonetheless controls it.
4. C An asset acquired in a business combination is initially valued at 100%

acquisition-date fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2014................................................ $45,000
Amortization for 2 years (10 year remaining life).......................... (9,000)
Patent reported amount December 31, 2015.................................. $36,000
5. C
6. B Combined revenues......................................................................... $1,100,000

Combined expenses......................................................................... (700,000)
Excess acquisition-date fair value amortization............................ (15,000)
Consolidated net income................................................................. $385,000
Less: noncontrolling interest share ($85,000 × 40%).................... (34,000)
Consolidated net income to Chamberlain Corporation................ $351,000
7. C Consideration transferred by Pride................................................. $540,000

Noncontrolling interest fair value.................................................... 60,000
Star acquisition-date fair value........................................................ $600,000
Star book value.................................................................................. 420,000
Excess fair over book value............................................................. $180,000
Amort.
to equipment (8 year remaining life)............................ $ 80,000 $10,000
to customer list (4 year remaining life)........................ 100,000 25,000
$35,000
Combined revenues.......................................................................... $783,000

Combined expenses...................................................... $545,000
Excess fair value amortization..................................... 35,000 580,000
Consolidated net income................................................................. $203,000
8. A Under the equity method, consolidated RE = parent’s RE.
9. B
10. A Amie, Inc. fair value at July 1, 2015:

30% previously owned fair value (30,000 shares × $5) ................ $150,000
60% new shares acquired (60,000 shares × $6)............................ 360,000
10% NCI fair value (10,000 shares × $5)......................................... 50,000
Acquisition-date fair value............................................................... $560,000
Net assets' fair value......................................................................... 500,000
Goodwill ............................................................................................ $60,000
11. C
12. B Fair value of 30% noncontrolling interest on April 1..................... $165,000

30% of net income for remainder of year ($240,000 × 30%)......... 72,000
Noncontrolling interest December 31............................................. $237,000
13. C Proceeds of $80,000 less $64,000 (⅓ × $192,000) book value = $16,000

Control is maintained so excess proceeds go to APIC.
14. B Combined revenues.......................................................................... $1,300,000

Combined expenses......................................................................... (800,000)
Trademark amortization.................................................................... (6,000)
Patented technology amortization.................................................. (8,000)
Consolidated net income ................................................................ $486,000
15. C Subsidiary net income

($100,000 – $14,000 excess amortizations)........................................... $86,000
Noncontrolling interest percentage................................................ 40%
Net income attributable to noncontrolling interest....................... $34,400
Fair value of noncontrolling interest at acquisition date.............. $200,000
40% change in previous year Solar book value.............................
($530,000 – $400,000) × 40%...................................................... 52,000
40% of excess fair value amortization—year one.......................... (5,600)
Net income attributable to noncontrolling interest (above)......... 34,400
Noncontrolling interest at end of year............................................ $280,800
16. A West trademark balance................................................................... $260,000

Solar trademark balance.................................................................. 200,000
Acquisition-date fair value allocation............................................. 60,000
Excess fair value amortization for two years................................. (12,000)
Consolidated trademarks................................................................. $508,000
17. A Acquisition-date fair value ($60,000 ÷ 80%)................................... $75,000
Strand's book value ......................................................................... (50,000)
Fair value in excess of book value ................................................. $25,000
Excess assigned to inventory (60%) .................................$15,000
Excess assigned to goodwill (40%) ...............................................$10,000
Park current assets...................................................................................... $70,000
Strand current assets................................................................................... 20,000
Excess inventory fair value......................................................................... 15,000
Consolidated current assets........................................................................ $105,000
18. D Park noncurrent assets................................................................................ $90,000

Strand noncurrent assets............................................................................. 40,000
Excess fair value to goodwill....................................................................... 10,000
Consolidated noncurrent assets.................................................................. $140,000
19. B Add the two book values and include 10% (the $6,000 current portion) of the
loan taken out by Park to acquire Strand.
20. B Add the two book values and include 90% (the $54,000 noncurrent portion) of
the loan taken out by Park to acquire Strand.
21. C Park stockholders' equity............................................................................ $80,000

Noncontrolling interest at fair value (20% × $75,000)............................. 15,000
Total stockholders' equity........................................................................... $95,000
22. (15 minutes) (Compute consolidated net income and noncontrolling

interest)
2014 2015
a. Harrison net income................................................................. $220,000 $260,000
Starr net income....................................................................... 70,000 90,000
Acquisition-date excess fair value amortization.................... (8,000) (8,000)
Consolidated net income.......................................................... $282,000 $342,000
b. Starr fair value............................................................................................. $1,200,000

Fair value of consideration transferred..................................................... 1,125,000
Noncontrolling interest fair value............................................................... $75,000
Noncontrolling interest fair value January 1, 2014 (above)...................... $75,000

2014 income to NCI ([$70,000 – $8,000] × 10%)........................................... 6,200
2014 dividends to NCI ................................................................................ (3,000)
Noncontrolling interest reported value December 31, 2014................. 78,200
2015 net income attributable to NCI ([$90,000 – $8,000] × 10%)............... 8,200
2015 dividends to NCI ................................................................................ (3,000)
Noncontrolling interest reported value December 31, 2015 $83,400
23. (30 minutes) (Consolidated balances, allocation of consolidated net income to
controlling and noncontrolling interest, calculation of noncontrolling interest).
a. Stayer’s technology processes:

Acquisition-date fair value (20 year remaining life) $1,000,000
2015 amortization (50,000)
Technology processes 12/31/15 $ 950,000
b. Stayer’s building:
Acquisition-date fair value (10 year remaining life) $345,000
2015 depreciation (34,500)
Building 12/31/15 $310,500
-or-
$175,500 + $150,000 – $15,000 = $310,500
c. Controlling interest in consolidated net income:
Net income–Johnsonville $650,000

Net income–Stayer adjusted for excess fair value
amortization (see part d below) 285,000
Consolidated net income 935,000
Less: net income attributable to noncontrolling
interest (see part d below) (57,000)
Net income attributable to Johnsonville Co. $878,000
-OR-
Johnsonville’s separate net income $650,000

Stayer’s reported net income 350,000
Excess fair value amortization:
Technology processes (50,000)
Building ($345,000 – $195,000) ÷ 10 years (15,000)
Stayer’s adjusted net income 285,000
Johnsonville’s ownership percentage 80% 228,000
Net income attributable to Johnsonville Co. $878,000
d. Net income attributable to noncontrolling interest:

Stayer’s reported net income 350,000
Excess fair value amortization:
Technology processes (50,000)
Building ($345,000 – $195,000) ÷ 10 years (15,000)
Stayer’s adjusted net income 285,000
Noncontrolling interest percentage 20%
Net income attributable to noncontrolling interest $57,000
23. (continued)
e. Noncontrolling interest:
Acquisition-date balance 1/1/15
Total Stayer fair value ($3,000,000 ÷ 80%) $3,750,000
Noncontrolling interest acquisition-date fair value $750,000
Net income attributable to noncontrolling interest 57,000
Noncontrolling interest share of Stayer dividends (20% × $50,000) (10,000)
Noncontrolling interest 12/31/15 $ 797,000
24. (40 minutes) (Several valuation and income determination questions for a
business combination involving a noncontrolling interest.)
a. Business combinations are recorded generally at the fair value of the consideration
transferred by the acquiring firm plus the acquisition-date fair value of the noncontrolling
interest.
Patterson’s consideration transferred ($31.25 × 80,000 shares)....................... $2,500,000

Noncontrolling interest fair value ($30.00 × 20,000 shares).............................. 600,000
Soriano’s total fair value January 1................................................................. $3,100,000
b. Each identifiable asset acquired and liability assumed in a business combination is initially
reported at its acquisition-date fair value.
c. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at
their book values adjusted for acquisition-date fair value allocations and for subsequent
amortization and depreciation on those allocations. Except for certain financial items, the
subsidiary’s assets and liabilities are not continually adjusted for changing fair values.
d. Soriano’s total fair value January 1................................................................. $3,100,000

Soriano’s net assets book value......................................................................... 1,290,000
Excess acquisition-date fair value over book value......................................... $1,810,000
Adjustments from book to fair values..............................................................
Buildings and equipment................................................... (250,000)
Trademarks......................................................................... 200,000
Patented technology........................................................... 1,060,000
Unpatented technology....................................................... 600,000 1,610,000
Goodwill ...................................................................................................... $ 200,000
e. Combined revenues............................................................................... $4,400,000

Combined expenses............................................................................... (2,350,000)
Building and equipment excess depreciation..................................... 50,000
Trademark excess amortization............................................................ (20,000)
Patented technology amortization........................................................ (265,000)
Unpatented technology amortization................................................... (200,000)
Consolidated net income....................................................................... $1,615,000
24. (continued)
To noncontrolling interest:
Soriano’s revenues........................................................................... $1,400,000
Soriano’s expenses........................................................................... (600,000)
Total excess amortization expenses (above)................................. (435,000)
Soriano’s adjusted net income........................................................ $ 365,000
Noncontrolling interest percentage ownership............................. 20%
Net income attributable to noncontrolling interest....................... $ 73,000
To controlling interest:
Consolidated net income................................................................. $1,615,000
Net income attributable to noncontrolling interest....................... (73,000)
Net income attributable to Patterson.............................................. $1,542,000
-OR-
Patterson’s revenues........................................................................ $3,000,000

Patterson’s expenses....................................................................... 1,750,000
Patterson’s separate net income..................................................... $1,250,000
Patterson’s share of Soriano’s adjusted net income
(80% × $365,000)..................................................................... 292,000
Consolidated net income attributable to Patterson...................... $1,542,000
f. Fair value of noncontrolling interest January 1.................................. $ 600,000

Net income attributable to noncontrolling interest............................. 73,000
Dividends (20% × $30,000)..................................................................... (6,000)
Noncontrolling interest December 31.................................................. $ 667,000
g. If Soriano’s acquisition-date total fair value was $2,250,000, then a bargain

purchase has occurred.
Collective fair values of Soriano’s net assets................................................... $2,900,000

Soriano’s total fair value January 1................................................................. $2,250,000
Bargain purchase............................................................................................... $ 650,000
The acquisition method requires that the subsidiary assets acquired and
liabilities assumed be recognized at their acquisition date fair values regardless
of the assessed fair value. Therefore, none of Soriano’s identifiable assets and
liabilities would change as a result of the assessed fair value. When a bargain
purchase occurs, however, no goodwill is recognized.
25. (30 minutes) Step acquisition.
a. Investment in Sellinger 445,000

Cash 415,000
Additional paid-in capital 30,000
Acquisition-date fair value ($1,141,000 ÷ .7) $1,630,000

Sellinger net income 2014 340,000
Excess fair value amortization 2014 (40,000)
Sellinger dividends 2014 (150,000)
Acquisition-date adjusted subsidiary value 12/31/14 1,780,000
Percent acquired 1/1/15 0.25
Acquisition-date based value of newly acquired shares $ 445,000
Acquisition price for 25% interest 415,000
Credit to Palka’s APIC $ 30,000
b. Initial value for 70% acquisition $1,141,000

70% of adjusted 2014 subsidiary net income
($340,000 – $40,000) 210,000
70% of subsidiary dividends 2014 (105,000)
Adjusted fair value of newly acquired shares 445,000
95% of adjusted subsidiary 2015 net income
($440,000 – $40,000) 380,000
95% of subsidiary dividends 2015 (171,000)
Investment in Sellinger 12/31/15 $1,900,000
26. (20 Minutes) (Determine consolidated income balances, includes a mid-year
acquisition)
a. Acquisition-date total fair value .......................... $594,000

Book value of net assets....................................... (400,000)
Fair value in excess of book value ..................... $194,000
Excess fair value assigned to specific Remaining Annual excess
accounts based on fair value life amortizations
Patent ............................................................ 140,000 5 years $28,000
Land ............................................................ 10,000
Buildings......................................................... 30,000 10 years 3,000
Goodwill........................................................... 14,000
Total ............................................................ -0- $31,000
Consolidated figures following January 1 acquisition date:

Combined revenues ........................................................................................... $1,500,000
Combined expenses............................................................................................ (1,031,000)
Consolidated net income.................................................................................... 469,000
Net income to noncontrolling interest ([200,000 – 31,000] × 30%).............. (50,700)
Net income attributable to Parker, Inc............................................................ $ 418,300
b. Consolidated figures following April 1 acquisition date:

Combined revenues (1)...................................................................................... $1,350,000
Combined expenses (2)....................................................................................... (923,250)
Consolidated net income ................................................................................... $ 426,750
Net income attributable to noncontrolling interest (3)................................... (38,025)
Net income attributable to Parker, Inc............................................................ $ 388,725
(1) $900,000 Parker revenues plus $450,000 of post-acquisition Sawyer revenues

(2) $600,000 Parker expenses plus $300,000 of post-acquisition Sawyer expenses
plus $23,250 amortization expenses for 9 months
(3) ($200,000 – 31,000) adjusted subsidiary net income × 30% × ¾ year
27. (15 minutes) Consolidated figures with noncontrolling interest
Fair value of company (given) $60,000

Book value (10,000)
Fair value in excess of book value 50,000
to machine ($50,000 – $10,000) 40,000 ÷ 10 = $4,000 per year
to process trade secret $10,000 ÷ 4 = 2,500 per year
$6,500 per year
Consolidated figures:
 Net income attributable to noncontrolling interest
= 40%  ($50,000 revenues less $26,500 expenses) = $9,400
 End-of-year noncontrolling interest:
Beginning balance (40%  $60,000) $24,000
Net income allocation (from above) 9,400
Dividend reduction (40%  $5,000) (2,000)
End-of-year noncontrolling interest $31,400
 Machine (net) = $45,000 ($9,000 book value plus $40,000 excess allocation
less $4,000 excess depreciation for one year).
 Process trade secret (net) = $10,000 – $2,500 = $7,500
28. (45 minutes) Noncontrolling interest in the presence of a control premium.
a. Goodwill allocation: Parflex NCI

Acquisition-date fair value $344,000 $36,000
Share of identifiable net assets ($324,000 + $18,000) 307,800 34,200
Goodwill allocation $36,200 $1,800
b. Investment in Eagle
Initial value $344,000
Change in Eagle’s RE × 90%
($341,000 – $174,000) × 90% 150,300
Excess amortization (3 years) × 90% (5,400)
Investment in Eagle 12/31/15 $488,900
-OR-
Investment in Eagle
Initial value $344,000
2013-2014 change in Eagle’s RE × 90%
($278,000 – $174,000) × 90% 93,600
Excess fair value amortization (3,600)
Equity income 2015 (below) 79,200
Eagle 2015 dividends × 90% (24,300)
Investment in Eagle 12/31/15 $488,900
Equity in Eagle’s earnings:

Eagles reported 2015 net income $90,000
Excess equipment amortization (2,000)
Adjusted net income $88,000
Parflex ownership share 90%
Equity in Eagle’s earnings $79,200
28. continued
c. December 31, 2015 Parflex Eagle Adjustments NCI Consolidated

Sales (862,000) (366,000) (1,228,000)
Cost of goods sold 515,000 209,000 724,000
Depreciation expense 191,200 67,000 E 2,000 260,200

Equity in Eagle's earnings (79,200) 0 I 79,200 0
Separate company net
income (235,000) (90,000)
Consolidated net income (243,800)
to noncontrolling interest (8,800) 8,800
to Parflex Corporation (235,000)
Retained earnings, 1/1 (500,000) (278,000) S 278,000 (500,000)

Net income (above) (235,000) (90,000) (235,000)
Dividends declared 130,000 27,000 24,300 D 2,700 130,000
Retained earnings, 12/31 (605,000) (341,000) (605,000)
Cash and receivables 135,000 82,000 217,000

Inventory 255,000 136,000 391,000
Investment in Eagle 488,900 0 D 24,300 385,200 S -0-
12,600 A1
36,200 A2
79,200 I
Property & equipment (net) 964,000 328,000 A1 14,000 2,000 E 1,304,000
Goodwill A2 38,000 38,000
Total assets 1,842,900 546,000 1,950,000
Liabilities (722,900) (55,000) (777,900)

Common stock (515,000) (150,000) S 150,000 (515,000)
NCI 1/1 42,800 S
1,400 A1
1,800 A2 (46,000)
NCI 12/31 (52,100) (52,100)
Total liabilities and equities (1,842,900) (546,000) 585,500 585,500 (1,950,000)
29. (25 Minutes) (Determine consolidated balances for a step acquisition).
a. Amsterdam fair value implied by price paid by Morey

$560,000 ÷ 70% = $800,000
b. Revaluation gain:
1/1 equity investment in Amsterdam (book value) $178,000
25% net income for 1st 6 months 8,750
Investment book value at 6/30 186,750
Fair value of investment at 6/30 (25% × $800,000) 200,000
Gain on revaluation to fair value $ 13,250
c. Goodwill at 12/31:
Fair value of Amsterdam at 6/30 $800,000
Book value at 6/30 (700,000 + [70,000 ÷ 2]) 735,000
Excess fair value $ 65,000
Allocation to goodwill (no impairment) $ 65,000
d. Noncontrolling interest:
5% fair value balance at 6/30 $40,000
5% subsidiary net income from 6/30 to 12/31 1,750
5% subsidiary dividends (1,000)
Noncontrolling interest 12/31 $40,750
30. (30 Minutes) (Reporting the sale of a portion of an investment in a subsidiary.)
a. Posada records an accrual of $7,950 (see computation below) as "Equity Income
from Sold Shares of Sabathia" for the January 1, 2015 to October 1, 2015 period
which will appear in the 2015 consolidated income statement. The consolidation
will continue to include all of Sabathia's accounts but now recognizing a 40%
noncontrolling interest.
Sabathia fair value 1/1/13 ................................................... $1,200,000
Sabathia book value ............................................................ (1,130,000)
Patent ................................................................................... $70,000
Remaining life of patent ..................................................... 5 years
Annual amortization ................................................... $14,000
Posada’s share of Sabathia’s net income accruing to shares sold:
Sabathia's net income.......................................................... $120,000
Excess patent fair value amortization................................ (14,000)
Sabathia's adjusted net income.......................................... 106,000
Fraction of year held............................................................ 9/12
Sabathia’s adjusted net income for 9 months.................... 79,500
Percentage owned by Posada.............................................. 70%
Posada’s share of Sabathia’s 9 month net income ........... 55,650
Shares sold—1,000 out of 7,000 ......................................... 1/7
Posada’s income for shares sold ............................. $7,950
b. As long as control is maintained, the acquisition method considers

transactions in the stock of a subsidiary, whether purchases or sales, as
transactions in the equity of the consolidated entity.
Posada’s investment book value 10/1/15

1/1/15 balance (given—equity method) .................... $1,085,000
Recognition of 1/1/15–10/1/15 period:
Income accrual ($120,000 × 70% × ¾) ................. 63,000
Dividends ($40,000 × 70% × ¾) ................................... (21,000)
Amortization ($14,000 × 70% × ¾) ....................... (7,350)
Pre-sale investment book value—10/1/15................. $1,119,650
Computation of income effect—sale transaction
10/1/15 book value (above) ........................................ $1,119,650
Portion of investment sold (1,000/7,000 shares) ..... 1/7
Book value of investment sold ............................................ $ 159,950
Proceeds ..................................................................... 191,000
Credit to Posada’s additional paid-in capital .......... $ 31,050
c. Because Posada continues to hold 6,000 shares of Sabathia, control is still

maintained and consolidated financial statements would be appropriate
with a noncontrolling interest of 40 percent.
31. (35 Minutes) (Consolidation entries and the effect of different investment
methods)
a. From the original fair value allocation, $30,000 is assigned based on the fair value
of the patent. With a 5-year remaining life, excess amortization will be $6,000 per
year.
Because the equity method is in use, no Entry *C is required.
Entry S
Common stock (Bandmor) ............................. 300,000
Retained earnings, 1/1/15 (Bandmor) ............ 268,000
Investment in Bandmor (70%) .................. 397,600
Noncontrolling interest in Bandmor, 1/1/15 170,400
(To eliminate stockholders' equity accounts of subsidiary and
recognize outside ownership. Retained earnings figure includes 2013
and 2014 net income and dividends.)
Entry A
Patent ....................................................................... 18,000
Goodwill ............................................................ 190,000
Investment in Bandmor ............................. 145,600
Noncontrolling interest in Bandmor (30%) 62,400
(To recognize unamortized portions of acquisition-date fair value
allocations. No control premium, so goodwill is allocated
proportionately. Patent has undergone two years amortization)
Entry I
Equity in Bandmor earnings .......................... 72,800
(To eliminate intra-entity income balance. Equity accrual of $72,800
[70% × ($110,000 – 6,000 amortization)] has been recorded)
Entry D
Investment in Bandmor .................................. 42,000
Dividends declared .................................... 42,000
(To eliminate current intra-entity dividend transfers—70% of $60,000)
Entry E
Amortization expense...................................... 6,000
Patent........................................................... 6,000
(To recognize amortization for current year)
Entry P
Accounts payable ............................................ 22,000
Accounts receivable .................................. 22,000
(To eliminate intra-entity payable/receivable balance)
31. (continued)
b. If the initial value method had been applied, the parent would have recorded only
the subsidiary dividends declared as income rather than an equity accrual.
Therefore, Entry *C is needed to adjust the parent's beginning retained earnings
for 2015 to the equity method. During 2013 and 2014, the subsidiary earned a total
net income of $171,000 but declared dividends of only $83,000. The parent's share
of the difference is $61,600 (70% of $88,000 [$171,000 - $83,000]). In addition, the
parent’s 70% share of excess amortization expense for two years must also be
included ($8,400 = 2 years × $6,000 per year × 70%). The net amount to be
recognized is $53,200 ($61,600 - $8,400).
ENTRY *C
Investment in Bandmor .................................. 53,200
Retained earnings, 1/1/15 .......................... 53,200
c. If the partial equity method had been applied, only the excess amortization
expenses for the previous two years would have been omitted from the
parent's retained earnings. As shown above, that figure is $8,400 (2 years
× $6,000 per year × 70%).
ENTRY *C
Retained earnings, 1/1/15 ............................... 8,400
d. Net income attributable to noncontrolling interest—2015
[($110,000 – 6,000) × 30%] .............................. $31,200
Noncontrolling interest (NCI) fair value January 1, 2013 $210,000

Adjustments to original basis:
2013 NI to noncontrolling interest...................... $20,700
Dividends to NCI......................................... (11,700) 9,000
2014 NI to noncontrolling interest...................... $27,000

Dividends to NCI......................................... (13,200) 13,800
2015 Net income to noncontrolling interest...... $31,200

Dividends to NCI......................................... (18,000) 13,200
Noncontrolling interest in Bandmor 12/31/15..... $246,000
–OR–
Worksheet adjustment S..................................................................... $170,400

Worksheet adjustment A.................................................................... 62,400
2015 net income attributable to noncontrolling interest................. 31,200
2015 dividends to noncontrolling interest ........................................ (18,000)
Noncontrolling interest in Bandmor 12/31/15........................ $246,000
32. (45 Minutes) (Asks about several consolidated balances and consolidation
process. Includes the different accounting methods to record investment.)
a. Schedule 1—Fair Value Allocation and Excess Amortizations
Consideration transferred by Miller ......... $664,000

Noncontrolling interest fair value............. 166,000
Taylor’s fair value........................................ $830,000
Taylor’s book value..................................... (600,000)
Fair value in excess of book value .......... 230,000
Excess fair value assigned to buildings 80,000
20 years $4,000
Goodwill ............................................................. $150,000 indefinite -0-
Total........................................................ $4,000
b. $150,000 (see schedule 1 above)
c. Entry (S)
Common stock (Taylor) ........................................ 300,000
Additional paid-in capital (Taylor) ....................... 90,000
Retained earnings (Taylor) ................................... 210,000
Investment in Taylor Company (80%) ........... 480,000
Noncontrolling interest in Taylor (20%) ........ 120,000
Entry (A)—no control premium

Buildings ................................................................ 80,000
Goodwill ................................................................. 150,000
Investment in Taylor Company (80%) ........... 184,000
Noncontrolling interest in Taylor (20%) ........ 46,000
d. (1) Equity method

Income accrual (80%) ............................................ $56,000
Excess amortization expense ............................... (3,200)
Investment income ........................................... $52,800
(2) Partial equity method
Income accrual (80%) ............................................ $56,000
(3) Initial value method
Dividends received (80%) ...................................... $8,000
32. (continued)
e. (1) Equity method

Initial fair value paid....................................................... $664,000
Income accrual 2013–2015 ($260,000 × 80%) ...... 208,000
Dividends 2013–2015 ($45,000 × 80%) ................. (36,000)
Excess amortizations 2013–2015 ($3,200 × 3) ..... (9,600)
Investment in Taylor—12/31/15 ....................... $826,400
(2) Partial Equity Method

Investment in Taylor—12/31/15 = $836,000 (initial value paid plus income
accrual of $208,000 less dividends of $36,000 [no excess amortizations])
(3) Initial Value Method
Investment in Taylor—12/31/15 = $664,000 (original value paid)
f. Using the acquisition method, the allocation will be the total difference
($80,000) between the buildings' book value and fair value. Based on a 20
year remaining life, annual excess amortization is $4,000.
Miller book value—buildings .......................................... $800,000

Taylor book value—buildings ......................................... 300,000
Allocation .......................................................................... 80,000
Excess amortizations for 2013–2014 ($4,000 × 2) ........ (8,000)
Consolidated buildings account .............................. $1,172,000
g. Acquisition-date fair value allocated to goodwill

(see schedule 1 above) ............................................. $150,000
h. If the parent has been applying the equity method, the stockholders'
equity accounts on its books will already represent consolidated totals.
The common stock and additional paid-in capital figures to be reported are
the parent balances only. As to retained earnings, the equity method will
properly record all subsidiary net income and amortization so that the
parent balance is also a reflection of the consolidated total.
33. (20 Minutes) (A variety of consolidated balances-midyear acquisition)
Consideration transferred by Karson
(cash and contingent consideration)......... $1,360,000
Noncontrolling interest fair value .................. 340,000
Reilly’ fair value (given)................................... $1,700,000
Book value of Reilly........................................ (1,450,000)*
Fair value in excess of book value................. $250,000
Trademarks ................................................... 150,000 5 years $30,000
Goodwill ........................................................ $100,000 indefinite -0-
Total ............................................................ $30,000
*Reilly book value, January 1

(Common stock + APIC + RE) ....................... $1,400,000
Increase in book value:
Net income (revenues less cost of
goods sold and expenses) ................... $120,000
Dividends ................................................ (20,000)
Change during year .................................. $100,000
Change during first 6 months of year..... 50,000
Reilly book value, July 1 (acquisition date).............. $1,450,000
CONSOLIDATION TOTALS:
 Sales (1) $1,050,000
 Cost of goods sold (2) 540,000
 Operating expenses (3) 265,000
 Consolidated net income $245,000
 Net income attributable to noncontrolling interest (4) $9,000
(1) $800,000 Karson revenues plus $250,000 (post-acquisition
subsidiary revenue)
(2) $400,000 Karson COGS plus $140,000 (post-acquisition subsidiary
COGS)
(3) $200,000 Karson operating expenses plus $50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of
$15,000
(4) 20% of post-acquisition subsidiary net income less excess fair value
amortization [20% × ½ year × (120,000 – 30,000)] = $9,000
 Retained earnings, 1/1 = $1,400,000 (the parent’s balance because the
subsidiary was acquired during the current year)
 Trademarks = $935,000 (add the two book values and the excess fair value
allocation after taking one-half year excess amortization)
 Goodwill = $100,000 (the original allocation)
34. (25 Minutes) (A variety of consolidated questions and balances)
a. Nascent applies the initial value method because the original price of
$414,000 is still in the Investment in Sea-Breeze account. In addition, the
Investment Income account is equal to 60 percent of the dividends
declared by the subsidiary during the year.
b. Consideration transferred in acquisition. $414,000
Noncontrolling interest fair value............. 276,000
Sea-Breeze fair value 1/1/12....................... $690,000
Sea-Breeze book value 1/1/12 550,000
Excess fair value over book value $140,000
Buildings................................................ 60,000 6 years $10,000
Equipment.............................................. (20,000) 4 years (5,000)
Patent...................................................... 100,000 10 years 10,000
Total ...................................................... -0- $15,000
c. If the equity method had been applied, the Investment Income account
would show the basic equity accrual less amortization: 60% of (the
subsidiary's net income of $90,000 less $15,000 excess fair value
amortization) = $45,000.
d. The initial value method recognizes neither the increase in the
subsidiary's book value nor the excess amortization expenses for prior
years. At the acquisition date, the subsidiary’s book value was $550,000
as indicated by the assets less liabilities. At the beginning of the current
year, the book value of the subsidiary is $780,000 as indicated by
beginning stockholders' equity balances.
Increase in book value during prior years
($780,000 – $550,000)............................................................ $230,000
Less excess amortization .......................................................... (45,000)
Net increase in book value......................................................... $185,000
Ownership ................................................................................... 60%
Increase required in parent's retained earnings, 1/1/15 .................... $111,000
Parent's retained earnings, 1/1/15 as reported ........................ 700,000
Parent’s share of consolidated retained earnings, 1/1/15....... $811,000
e. Consolidated net income and allocation
 Revenues (add book values) $900,000
 Expenses (add book values and excess amortization) (635,000)
 Consolidated net Income $265,000
 Net income attributable to noncontrolling interest
($90,000 – 15,000) × 40% 30,000
 Net income attributable to Nascent, Inc. $235,000
34. (continued)
f. Consolidated buildings, 1/1/12 (subsidiary):

Book value.............................................................................. $300,000
Acquisition-date fair-value allocation ................................. 60,000
Consolidation figure ............................................................. $360,000
g. Consolidated buildings, 12/31/15:
Parent's book value .............................................................. $700,000
Subsidiary's book value ....................................................... 200,000
Original allocation ................................................................. 60,000
Amortization ($10,000 × 4 years) ......................................... (40,000)
Consolidated balance ........................................................... $920,000
35. (Acquisition Method Consolidated Balances)
Adjustments
December 31, 2015 Paloma San Marco & Eliminations NCI Consolidated
Revenues (1,843,000) (675,000) (2,518,000)
Cost of goods sold 1,100,000 322,000 1,422,000
Depreciation expense 125,000 120,000 245,000
Amortization expense 275,000 11,000 (E) 80,000 366,000
Interest expense 27,500 7,000 34,500
Equity in San Marco Income (121,500) (I)121,500 -0-
Separate company
net income (437,000) (215,000)
To noncontrolling interest (13,500) (13,500)
To Paloma Company (437,000)
Retained Earnings 1/1 (2,625,000) (395,000) (S)395,000 (2,625,000)

Net Income (437,000) (215,000) (437,000)
Dividends declared 350,000 25,000 (D) 22,500 2,500 350,000
Retained Earnings 12/31 (2,712,000) (585,000) (2,712,000)
Current Assets 1,204,000 430,000 1,634,000

Investment in San Marco 1,854,000 (D) 22,500 (S)769,500
(A)985,500 -0-
(I) 121,500
Customer base -0- -0- (A)720,000 (E) 80,000 640,000
Buildings and Equipment 931,000 863,000 1,794,000
Copyrights 950,000 107,000 1,057,000
Goodwill (A)375,000 375,000
Total Assets 4,939,000 1,400,000 5,500,000
Accounts Payable (485,000) (200,000) (685,000)

Notes Payable (542,000) (155,000) (697,000)
NCI in San Marco (S) 85,500
(A)109,500 (195,000)
(206,000) (206,000)
Common Stock (900,000) (400,000) (S)400,000 (900,000)
Additional Paid-In Capital (300,000) (60,000) (S) 60,000 (300,000)
Retained Earnings 12/31 (2,712,000) (585,000) (2,712,000)
Total Liab. and SE (4,939,000) (1,400,000) 2,174,000 2,174,000 (5,500,000)
35. (Continued)
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $190,000
Relative fair values of identifiable net assets
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base) 1,372,500 152,500
Goodwill $337,500 $37,500
b. If the acquisition-date fair value of the noncontrolling interest was $167,500, both
goodwill (NCI portion) and the noncontrolling interest balance would be reduced
equally by $22,500 as follows:
Fair value of San Marco Company (1,710,000 + 167,500) $1,877,500

Carrying amount acquired 725,000
Excess fair value 1,152,500
to customer base 800,000
to goodwill $352,500
Noncontrolling interest balance beginning of year* $(172,500)

Net income attributable to noncontrolling interest (13,500)
Dividends declared to noncontrolling interest 2,500
Noncontrolling interest end of year $(183,500)
* NCI at beginning of year

Common stock-subsidiary $400,000
APIC-subsidiary 60,000
Retained earnings-subsidiary 1/1 395,000
Total $855,000
Noncontrolling share of subsidiary book value 85,500
Noncontrolling share of 1/1 customer base excess72,000
Noncontrolling share of goodwill (below) 15,000
Noncontrolling interest 1/1 $172,500
Controlling Noncontrolling
Interest Interest
Fair value at acquisition date $1,710,000 $167,500
90% and 10% of $1,525,000 (acquisition date
recorded fair value plus customer base) 1,372,500 152,500
Goodwill $ 337,500 $15,000
36. (60 Minutes) (Consolidation worksheet and income statement with parent
using initial value method. Also consolidated balances with a control
premium paid by parent.)
a. Fair Value Allocation and Amortization

Consideration transferred by Holtz................ $576,000
Noncontrolling interest fair value................... 144,000
Devine total fair value 1/1/14........................... $720,000
Devine book value 1/1/14................................ (326,500)
Fair value in excess of book value ................ $393,500
accounts based on fair value: life amortizations
Building........................................................ 85,500 5 years $17,100
Trademark .................................................. 64,000 10 years 6,400
Goodwill....................................................... $244,000 indefinite -0-
$23,500
Explanation of Consolidation Entries Found on Worksheet
Entry *C: Convert the parent’s 1/1/15 retained earnings balance from the
initial value method to the accrual basis.
Change in subsidiary RE from 1/1/14 to 1/1/15. $70,000
Excess amortization for 2014.............................. 23,500
Adjusted subsidiary RE increase....................... $46,500
Percentage ownership by parent........................ 80%
*C conversion entry.............................................. $37,200
Entry S: Eliminates stockholders' equity accounts of subsidiary while
recognizing noncontrolling interest balance (20%) as of the beginning of
the current year.
Entry A: Recognizes acquisition-date fair value allocations less one year of
amortization for building and trademark and increases beginning balance
of the noncontrolling interest for its share.
Entry I: Eliminates Intra-entity dividends declared by subsidiary and
recorded as income by parent.
Entry E: Recognizes amortization expense for current year.
Columnar entry—Recognizes net income attributable to noncontrolling
interest [($97,000 – $23,500) × 20%].
36. a. (continued) HOLTZ CORPORATION AND DEVINE, INC.
Consolidation Worksheet
For Year Ending December 31, 2015
Holtz Devine Consolidation Entries Noncontrolling Consolidated
Accounts Corporation Inc. Debit Credit Interest Totals
Sales (641,000) (399,000) (1,040,000)
Operating expenses 273,000 126,000 (E) 23,500 422,500
Dividend income (16,000) ___ _-0- (I) 16,000 -0-
Separate company net income (186,000) (97,000)
NI attributable to noncontrolling interest (14,700) 14,700
NI attributable to Holtz Corp. (228,800)
Retained earnings, 1/1 (762,000) (296,500) (S) 296,500 (*C) 37,200 (799,200)
Net income (above) (186,000) (97,000) (228,800)
Dividends declared 70,000 20,000 (I) 16,000 4,000 70,000
Current assets 121,000 120,500 241,500

Investment in Devine 576,000 -0- (*C) 37,200 (S)317,200 -0-
(A)296,000
Buildings and equipment (net) 887,000 335,000 (A) 68,400 (E) 17,100 1,273,300
Trademarks 149,000 236,000 (A) 57,600 (E) 6,400 436,200
Goodwill -0- -0- (A)244,000 244,000
Total assets 1,733,000 691,500 2,195,000
Liabilities (535,000) (218,000) (753,000)

Common stock (320,000) (100,000) (S)100,000 (320,000)
Retained earnings, 12/31 (above) (878,000) (373,500) (958,000)
NCI in Devine, 1/1 (S) 79,300
(A) 74,000 (153,300)
NCI in Devine, 12/31 (164,000) (164,000)
Total liabilities and equities (1,733,000) (691,500) 843,200 843,200 (2,195,000)
36. (continued)
b. HOLTZ CORPORATION AND DEVINE, INC.
Consolidated Income Statement
Sales $1,040,000
Cost of goods sold $374,000
Operating expenses 422,500
Total expenses 796,500
Consolidated net income $243,500
To 20% noncontrolling interest $14,700
To Holtz Corporation $228,800
c. Consideration transferred by Holtz for 80% of Devine $576,000

Noncontrolling interest fair value ($4.76 × 20,000 shares) 95,200
Devine fair value $671,200
Fair value of Devine’s underlying net assets 476,000
Goodwill $195,200
If the noncontrolling interest fair value was $4.76 per share at the acquisition
date, then goodwill declines to $195,200. The noncontrolling interest total would
also decline from $164,000 to $115,200.
Worksheet entries (S), (A1) and (A2) assuming a $4.76 noncontrolling interest
acquisition-date fair value:
(S) Common stock-Devine 100,000

Retained earnings- Devine 1/1 296,500
Investment in Devine 317,200
Noncontrolling interest 79,300
(A1) Buildings and equipment (net) 68,400

Trademarks 57,600
Noncontrolling interest 25,200
(A2) Goodwill 195,200
Controlling
Noncontrolling
Interest Interest
Fair value at acquisition date $576,000 $95,200
80% and 20% of $476,000 (acquisition date
fair value of net identifiable assets) 380,800 95,200
Goodwill $195,200 -0-
37. (40 Minutes) (Determine consolidated balances.)
Acquisition-date subsidiary fair value (given).... $1,003,400

Book value of subsidiary (given) ........................ (690,000)
Fair value in excess of book value ..................... $313,400
Allocations to specific accounts based on difference
between fair value and book value
Land .................................................................. $225,000
Buildings and equipment ............................... (24,000)
Copyright .......................................................... 94,000
Notes payable .................................................. 18,400 313,400
Total......................................................... -0-
Annual excess amortizations:

Buildings and equipment [$(24,000) ÷ 10 years] $(2,400)
Copyright ($94,000 ÷ 20 years) 4,700
Notes payable ($18,400 ÷ 8 years) 2,300
Total $4,600
Consolidated Totals:
 Revenues = $2,079,880 (add the two book values)
 Cost of goods sold = $1,206,000 (add the two book values)
 Depreciation expense = $283,200 (add the two book values less $2,400
excess adjustment)
 Amortization expense = $10,800 (add the two book values plus $4,700
excess adjustment)
 Interest expense = $63,600 (add the two book values plus $2,300 excess
adjustment)
 Equity in income of Sierra = -0- (eliminated so that the individual revenues
and expenses of the subsidiary can be included in the consolidated
figures)
 Consolidated net income = $516,280 (revenues less expenses)
 Net income attributable to noncontrolling interest = $44,280 ($226,000
reported subsidiary net income less $4,600 net excess amortization
expense multiplied by 20 percent outside ownership)
 Net income to Padre Company = $472,000 ($516,280 consolidated net
income less noncontrolling interest share of $44,280)
 Retained earnings, 1/1 = $1,275,000 (parent company balance only)
 Dividends declared = $260,000 (parent company balance; subsidiary's
declarations to parent are intra-entity, declarations to outside owners
decrease noncontrolling interest balance)
37. (continued)
 Retained earnings, 12/31 = $1,487,000 (consolidated balance on 1/1 plus net
income to Padre Co. less Padre’s dividends declared) or simply the
parent’s RE because parent employs the equity method.
 Current assets = $1,620,860 (add the two book values)
 Investment in Sierra = -0- (eliminated so that the individual assets and
liabilities of the subsidiary can be included in the consolidated figures)
 Land = $650,000 (add the book values plus the $225,000 excess allocation)
 Buildings and equipment (net) = $1,162,800 (add the book values less the
$24,000 allocation [asset was overvalued] plus the excess amortization)
 Copyright = $205,200 (book value plus $94,000 excess allocation less
amortization for the year)
 Total assets = $3,638,860
 Accounts payable = $469,000 (add book values)
 Notes payable = $700,900 (add the book values less $18,400 excess
allocation plus amortization)
 Noncontrolling interest in subsidiary = $231,960 (20% of fair value as of 1/1
[$200,680] plus net income attributable to noncontrolling interest [$44,280]
less dividends declared to outside owners [$13,000])
 Common stock = $300,000 (parent company balance)
 Additional paid-in capital = 450,000 (parent company balance)
 Retained earnings, 12/31 = $1,487,000 (computed above)
 Total liabilities and equities = $3,638,860
37. (continued) Acquisition Method
Consolidation Entries Noncontrolling Consolidated
Accounts Padre Sierra Debit Credit Interest Totals
Revenues......................................... (1,394,980) (684,900) (2,079,880)
Cost of goods sold......................... 774,000 432,000 1,206,000
Depreciation expense..................... 274,000 11,600 (E) 2,400 283,200
Amortization expense.................... -0- 6,100 (E) 4,700 10,800
Interest expense............................. 52,100 9,200 (E) 2,300 63,600
Equity in income of Sierra .......... (177,120) -0- (I) 177,120 -0-
Separate company net income...... (472,000) (226,000)
Consolidated net income............... (516,280)
NI to noncontrolling interest...... (44,280) 44,280
NI to Padre Company .................. (472,000)
Retained earnings 1/1 .................... (1,275,000) (530,000) (S) 530,000 (1,275,000)
Net income (above) ........................ (472,000) (226,000) (472,000)
Dividends declared ................... 260,000 65,000 (D) 52,000 13,000 260,000
Retained earnings 12/31 .......... (1,487,000) (691,000) (1,487,000)
Current assets ................................ 856,160 764,700 1,620,860
Investment in Sierra ...................... 927,840 (D) 52,000(S) 552,000
..................................................... (I) 177,120
..................................................... (A) 250,720 -0-
Land ................................................ 360,000 65,000 (A) 225,000 650,000
Buildings and equipment (net)..... 909,000 275,400 (E) 2,400(A) 24,000 1,162,800
Copyright .......................... -0- 115,900 (A) 94,000(E) 4,700 205,200
Total assets ............................... 3,053,000 1,221,000 3,638,860
Accounts payable .......................... (275,000) (194,000) (469,000)
Notes payable ................................ (541,000) (176,000) (A) 18,400(E) 2,300 (700,900)
NCI in Sierra 1/1.............................. (S) 138,000
NCI in Sierra 12/31.......................... (A) 62,680 (200,680)
..................................................... (231,960) (231,960)
Common stock ............................... (300,000) (100,000) (S) 100,000 (300,000)
Additional paid-in capital.............. (450,000) (60,000) (S) 60,000 (450,000)
Retained earnings 12/31(above) … (1,487,000) (691,000) (1,487,000)
Total liab. and stockholders' equity (3,053,000) (1,221,000) 1,265,920 1,265,920 (3,638,860)
38. (55 Minutes) (Consolidated worksheet)
a. Consideration transferred by Adams $603,000
Noncontrolling interest fair value 67,000
Acquisition-date total fair value $670,000
Book value of Barstow (CS + RE 12/31/13) (460,000)
Excess fair value over book value 210,000
Land $30,000 — —
Buildings (20,000) 10 years ($2,000)
Equipment 40,000 5 years 8,000
Patents 50,000 10 years 5,000
Notes payable 20,000 5 years 4,000
120,000
Goodwill $90,000 indefinite -0-
Total $15,000
b. Because investment income is exactly 90 percent of Barstow's reported
earnings, Adams apparently is applying the partial equity method.
c. d. Explanation of Consolidation Entries Found on Worksheet
Entry *C—Converts Adams's financial records from the partial equity method
to the equity method by recognizing amortization for 2014. Total expense
was $15,000 but only 90 percent (or $13,500) applied to the parent.
Entry S—Eliminates subsidiary's stockholders' equity while recording
noncontrolling interest balance as of January 1, 2015.
Entry A—Records unamortized allocation balances as of January 1, 2015.
The acquisition method attributes 10 percent of these amounts to the non-
controlling interest.
Entry I—Eliminates intra-entity income accrual for 2015.
Entry D—Eliminates intra-entity dividend transfers.
Entry E—Records amortization expense for current year.
Columnar Entry—Recognizes noncontrolling interest's share of consolidated
net income as follows:
Net income attributable to noncontrolling interest (Columnar Entry)
Barstow reported net income ..................................................................... $120,000
Excess amortization expenses 2015............................................... (15,000)
Adjusted net income of Barstow ............................................... $105,000
Noncontrolling interest ownership ................................................ 10%
Net income attributable to noncontrolling interest.................. $ 10,500
38. c. and d. (continued) ADAMS CORPORATION AND BARSTOW, INC.
Consolidation Worksheet-Acquisition Method
For Year Ending December 31, 2015 Noncontrolling Consolidated
Adams Corp. Barstow Inc. Debit Credit Interest Totals

Revenues (940,000) (280,000) (1,220,000)
Depreciation expense 100,000 55,000 (E) 6,000 161,000
Amortization expense (E) 5,000 5,000
Interest expense 40,000 15,000 (E) 4,000 59,000
Investment income (108,000) -0- (I) 108,000 -0-
NI to noncontrolling interest (10,500) 10,500
NI to Adams Corporation (414,500)
Retained earnings, 1/1 (1,367,000) (340,000) (C*) 13,500 (1,353,500)

(S) 340,000
Net income (428,000) (120,000) (414,500)
Retained earnings, 12/31 (1,685,000) (390,000) (1,658,000)
Current assets 610,000 250,000 860,000
Investment in Barstow 702,000 (D) 63,000 (*C) 13,500 -0-
(S) 468,000
(A) 175,500
(I) 108,000
Land 380,000 150,000 (A) 30,000 560,000
Buildings 490,000 250,000 (E) 2,000 (A) 18,000 724,000
Equipment 873,000 150,000 (A) 32,000 (E) 8,000 1,047,000
Patents -0- -0- (A) 45,000 (E) 5,000 40,000
Goodwill -0- -0- (A) 90,000 90,000
Total assets 3,055,000 800,000 3,321,000
Notes payable (860,000) (230,000) (A) 16,000 (E) 4,000 (1,078,000)
Common stock (510,000) (180,000) (S) 180,000 (510,000)
(S) 52,000
Noncontrolling interest (A) 19,500 (71,500)
(75,000) (75,000)
Total liabilities and stockholders' equity (3,055,000) (800,000) 934,500 934,500 (3,321,000)
39. (25 minutes) (Consolidated balances after a mid-year acquisition)
a. Investment account balance indicates the initial value method.
Consideration transferred by Gibson....... $528,000
Noncontrolling interest fair value ............ 352,000
Davis acquisition-date fair value .............. 880,000
Book value of Davis (see below)............... (765,000)
Fair value in excess of book value ................... $115,000
accounts based on fair value: life amortizations
Equipment (overvalued).................. (30,000) 5 years $(6,000)
Goodwill ........................................... $145,000 indefinite -0-
Total ........................................................ $(6,000)
Amortization for 9 months ................... $(4,500)
Acquisition-date subsidiary book value:
Book value of Davis, 1/1/15 (CS + 1/1 RE) ............... $740,000
Increase in book value-net income (dividends
were declared after acquisition) .......................... $100,000
Time prior to purchase (3 months) ........................... × ¼ year 25,000
Book value of Davis, 4/1/15 (acquisition date) ........ $765,000
Consolidated income statement:
Revenues (1) $825,000
Cost of goods sold (2) $405,000
Operating expenses (3) 214,500 619,500
Consolidated net income 205,500
Net income attributable to noncontrolling interest (4) 31,800
Net income to Gibson Company $173,700
(1) $900,000 combined revenues less $75,000 (preacquisition
subsidiary revenue)
(2) $440,000 combined COGS less $35,000 (preacquisition subsidiary
COGS)
(3) $234,000 combined operating expenses less $15,000
(preacquisition subsidiary operating expenses) less nine month
excess overvalued equipment depreciation reduction of $4,500
(4) 40% of post-acquisition subsidiary net income less excess
amortization
b. Goodwill = $145,000 (original allocation)
Equipment = $774,500 (add the two book values less $30,000
reduction to fair value plus $4,500 nine months excess
amortization)
Common stock = $630,000 (parent company balance only)
Buildings = $1,124,000 (add the two book values)
Dividends declared = $80,000 (parent company balance only)
40. (40 minutes) Determine consolidated balance for a mid-year acquisition.
a. Consideration transferred by Truman ........... $720,000

Noncontrolling interest fair value .................. 290,000
Atlanta’s acquisition-date total fair value...... $1,010,000
Book value of Atlanta...................................... (840,000)
Fair value in excess of book value................. $ 170,000
Patent .......................................................... 100,000 5 years $20,000
Goodwill ........................................................ $ 70,000 indefinite -0-
Total ............................................................ $20,000
b. Goodwill allocation with control premium Controlling Noncontrolling

Interest Interest
Fair values at acquisition date $720,000 $290,000
70% and 30% of $940,000 (acquisition date
book value plus patent = net asset fair value) 658,000 282,000
Goodwill $ 62,000 $ 8,000
c. Initial value at acquisition date $720,000

Truman’s share of Atlanta’s net income for half year
([$120,000 – 20,000 amortization × ½ year] × 70%) 35,000
Dividends 2015 ($80,000 × ½ year × 70%) (28,000)
Investment account balance 12/31/15 $727,000
40. (continued)
d. Consolidated Worksheet
TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY

Truman Atlanta Adjustments & Eliminations NCI Cons.

Revenues (670,000) (400,000) (S)200,000 (870,000)
Operating Expenses 402,000 280,000 (E) 10,000 (S)140,000 552,000
Net income of subsidiary (35,000) (I) 35,000 -0-
Net income attributable to NCI (15,000) 15,000
Net income attributable to Truman (303,000)
Retained earnings, 1/1 (823,000) (500,000) (S) 500,000 (823,000)

Net income (above) (303,000) (120,000) (303,000)
Dividends declared 145,000 80,000 (S) 40,000 12,000
(D) 28,000 145,000
Retained earnings 12/31 (981,000) (540,000) (981,000)
Current assets 481,000 390,000 871,000

Investment in Atlanta 727,000 (D) 28,000 (S)588,000 -0-
(I) 35,000
(A1) 70,000
(A2) 62,000
Land 388,000 200,000 588,000
Buildings 701,000 630,000 1,331,000
Patent (A1)100,000 (E) 10,000 90,000
Goodwill (A2) 70,000 70,000
Total assets 2,297,000 1,220,000 2,950,000
Liabilities (816,000) (360,000) (1,176,000)

Common stock (95,000) (300,000) (S) 300,000 (95,000)
Additional paid-in capital (405,000) (20,000) (S) 20,000 (405,000)
Retained earnings 12/31 (981,000) (540,000) (981,000)
Noncontrolling interest 7/1 (A1) 30,000
(A2) 8,000
(S) 252,000 (290,000)
Noncontrolling interest 12/31 (293,000) (293,000)
Total liab. and equity (2,297,000) (1,220,000) 1,263,000 1,263,000 (2,950,000)
41. (60 minutes) (Consolidated statements for a step acquisition)
a. Fair value of Sysinger 1/1/15 (given) $1,750,000

Book value of Sysinger 1/1/15 (CS + APIC + RE) 1,300,000
To customer contract (4 year remaining life) 400,000
To goodwill $50,000
b. Equity in earnings of Sysinger

2015 net income (150,000 × 95%) $142,500
Amortization (100,000 × 95%) (95,000)
Equity in earnings of Sysinger $47,500
Revaluation of 15% block to fair value

Consideration transferred $184,500
2014 net income (100,000 × 15%) 15,000
2014 dividends (30,000 × 15%) (4,500)
Book value at 1/1/15 195,000
Fair value at 1/1/15 262,500
Gain on revaluation $67,500
Investment account balance

Fair value at 1/1/15 (15% block) $262,500
Consideration transferred 1/1/15 (80% block) 1,400,000
Equity earnings 2015
Net income (95% × 150,000) 142,500
Customer contract amortization (95,000) 47,500
Dividends (40,000 × 95%) (38,000)
Investment in Sysinger 12/31/15 $1,672,000
41. (Continued) c. Allan and Sysinger
Allan Sysinger Consolidation Entries Noncontrolling Consolidated
Accounts Company Company Debit Credit Interest Totals
Revenues (931,000) (380,000) (1,311,000)
Operating expenses 615,000 230,000 (E)100,000 945,000
Equity earnings of Sysinger (47,500) -0- (I) 47,500 -0-
Gain on revaluation (67,500) -0- (67,500)
NI attributable to Allan Company (431,000)
Net income (431,000) (150,000) (431,000)
Retained earnings 12/31 (1,256,000) (710,000) (1,256,000)
Current assets 288,000 540,000 828,000
Investment in Sysinger 1,672,000 -0- (D) 38,000 (S)1,235,000 -0-
(I) 47,500
(A) 427,500
Property, plant, and equipment 826,000 590,000 1,416,000
Patented technology 850,000 370,000 1,220,000
Customer contract -0- -0- (A) 400,000 (E) 100,000 300,000
Goodwill -0- (A) 50,000 50,000
Total assets 3,636,000 1,500,000 3,814,000
Liabilities (1,300,000) (90,000) (1,390,000)
Common stock (900,000) (500,000) (S) 500,000 (900,000)
Retained earnings 12/31 (1,256,000) (710,000) (1,256,000)
NCI in Sysinger, 1/1 -0- -0- (S) 65,000
(A) 22,500 (87,500)
NCI in Sysinger, 12/31 -0- -0- (88,000) (88,000)
Total liab. and stockholders' equity (3,636,000) (1,500,000) 1,935,500 1,935,500 (3,814,000)
42. (60 minutes) (Step acquisition—control previously acquired.)
a. According to the acquisition method, the valuation basis for a subsidiary is

established on the date control is obtained, in this case January 1, 2014.
Subsequent acquisitions are valued consistent with this initial value after
adjusting the investment for subsidiary net income and other changes.
Because subsequent acquisitions are considered as transactions in the parent’s

own equity, no gains or losses are recorded. Differences in cash paid and the
underlying value are recorded as adjustments to APIC.
Fair value of Keane Company 1/1/14 ($573,000 ÷ 60%) $955,000

Keane net income 2014 150,000
Excess fair value amortization for copyright (20,000)*
Keane dividends 2014 (80,000)
Initial fair value adjusted to 1/1/15 $1,005,000
Percent acquired in step acquisition 30%
Value assigned to 30% acquisition 301,500
Cash paid for the 30% acquisition 300,000
Credit to APIC from 30% step acquisition $ 1,500
*Fair value of Keane Company 1/1/14 ($573,000 ÷ 60%) $955,000

Book value of Keane Company 1/1/14 (given) 810,000
To copyright (6 year remaining life) 120,000
To goodwill $25,000
Entry to record 30% additional investment in Keane:
1/1/15 Investment in Keane 301,500

Cash 300,000
APIC from step acquisition 1,500
b. Investment in Keane Company 1/1/14 $573,000

2014 Equity earnings [60% × (150,000 – 20,000)] 78,000
2014 Dividends from Keane (60% × $80,000) (48,000)
Additional acquisition of 30% interest 301,500
2015 Equity earnings [90% × (180,000 – 20,000)] 144,000
2015 Dividends from Keane (90% × $60,000) (54,000)
Investment in Keane Company 12/31/15 $994,500
42. (continued) part c. BRETZ, INC. AND KEANE COMPANY
Year Ending December 31, 2015
Consolidation Entries Noncontrolling Consolidated

Accounts Bretz, Inc. Keane Co. Debit Credit Interest Totals
Revenues (402,000) (300,000) (702,000)
Operating expenses 200,000 120,000 (E) 20,000 340,000
Equity in Keane’s income (144,000) (I) 144,000
NI attributable to Bretz, Inc. (346,000)
Net income (above) (346,000) (180,000) (346,000)
Current assets 224,000 190,000 414,000
Investment in Keane Company 994,500 (S) 792,000 0
(D)54,000 (A) 112,500
(I) 144,000
Trademarks 106,000 600,000 706,000

Copyrights 210,000 300,000 (A)100,000 (E) 20,000 590,000
Equipment (net) 380,000 110,000 490,000
Goodwill (A) 25,000 25,000
Total assets 1,914,500 1,200,000 2,225,000
Liabilities (453,000) (200,000) (653,000)
Common stock (400,000) (300,000) (S)300,000 (400,000)
APIC-step acquisition (1,500) (1,500)
Retained earnings,12/31 (1,000,000) (620,000) (1,000,000)
Non-controlling interest 1/1 (A) 12,500
(S) 88,000 (100,500)
Non-controlling interest 12/31 (110,500) (110,500)
Total liabilities and equities (1,914,500) (1,200,000) 1,223,000 1,223,000 (2,225,000)
ACCOUNTING THEORY RESEARCH CASE: NONCONTROLLING INTEREST
In deliberations prior to the issuance of SFAS 160, “Noncontrolling Interests in

Consolidated Financial Statements,” the FASB considered three alternatives for
displaying the noncontrolling interest in the consolidated balance sheet
What were these three alternatives?

1. As a liability
2. As equity
3. In the “mezzanine” area between liabilities and owners’ equity
What criteria did the FASB use to evaluate the desirability of each alternative?
The FASB evaluated whether the classifications conformed to current definitions
of financial statement elements (assets, liabilities, or equity) as articulated in
FASB Concept Statement No. 6.
In what specific ways did FASB Concept Statement 6 affect the FASB’s evaluation
of these alternatives?
From SFAS 160 paragraphs 32-34
If it required that the noncontrolling interest be reported in the
mezzanine, the Board would have had to create a new element—
noncontrolling interest in subsidiaries—specifically for consolidated
financial statements. The Board concluded that no compelling reason
exists to create a new element specifically for consolidated financial
statements to report the interests in a subsidiary held by owners other
than the parent. The Board believes that using the existing elements of
financial statements along with appropriate labeling and disclosure
provides financial information in the consolidated financial statements
that is representationally faithful, understandable, and relevant to the
entity’s owners, creditors, and other resource providers.
The Board concluded that a noncontrolling interest in a subsidiary does

not meet the definition of a liability in the Board’s conceptual framework.
Paragraph 35 of Concepts Statement 6 defines liabilities as “probable
future sacrifices of economic benefits arising from present obligations of
a particular entity to transfer assets or provide services to other entities
in the future as a result of past transactions or events”
The Board concluded that a noncontrolling interest represents the

residual interest in the net assets of a subsidiary within the consolidated
group held by owners other than the parent. The noncontrolling interest,
therefore, meets the definition of equity in Concepts Statement 6.
Paragraph 49 of Concepts Statement 6 defines equity (or net assets) as
“the residual interest in the assets of an entity that remains after
deducting its liabilities.”
RESEARCH CASE: COCA-COLA’S ACQUISITION OF COCA-COLA ENTERPRISES
1. How did Coca-Cola allocate the acquisition-date fair value of CCE among the
assets acquired and liabilities assumed?
Note 2 (Acquisitions and Divestitures) of Coca-Cola’s 2010 10-K shows the
following allocation for the CCE acquisition:
Cash and cash equivalents $ 49

Marketable securities 7
Trade accounts receivable 1,194
Inventories 696
Other current assets 744
Property, plant and equipment 5,385
Bottlers' franchise rights with indefinite lives 5,100
Other intangible assets 1,032
Other noncurrent assets 261
Total identifiable assets acquired 14,468
Accounts payable and accrued expenses 1,826
Loans and notes payable 266
Long-term debt 9,345
Pension and other postretirement liabilities 1,313
Other noncurrent liabilities 2,603
Total liabilities assumed 15,353
Net liabilities assumed (885)
Goodwill 7,746
Less: Noncontrolling interests 13
Net assets acquired $ 6,848
2. What are employee replacement awards? How did Coca-Cola account for the
replacement award value provided to the former employees of CCE?
Employee replacement award represent various share-based payments to
employees that the acquiring firm replaces with new awards based on its
shares. The ASC requires that if replacement awards are based on past service,
their fair value is included in consideration transferred. If the replacement
award are for future service, their value is expensed as incurred. Coca-Cola
followed the ASC for its replacement awards (10-K Note 2).
3. How did Coca-Cola account for its 33 percent interest in CCE prior to the
acquisition of the 67 percent not already owned by Coca-Cola?
Coca-Cola used the equity method to account for its previous 33 percent
investment in CCE (10-K page 53).
4. Upon acquisition of the additional 67 percent interest, how did Coca-Cola
account for the change in fair value of its original 33 percent ownership
interest?
“We remeasured our equity interest in CCE to fair value upon the close of the
transaction. As a result, we recognized a gain of approximately $4,978 million,
which was classified in the line item other income (loss) — net in our
consolidated statement of income.” (10-K Note 2).
INSTAPOWER: FASB ASC AND IFRS RESEARCH CASE
1. What is the total consideration transferred by Q-Car to acquire its 90 percent
controlling interest in InstaPower?
Cash $60,000,000
Shares of Q-Car stock 27,000,000
Contingency 10,000,000
Total consideration transferred $97,000,000
The shares of Q-Car stock and the contingency are both measured at their
acquisition-date fair values (ASC 805-30-30-7, ASC 805-30-25-5).
2. What values should Q-Car assign to identifiable assets and liabilities as part of
the acquisition accounting?
Cash $ 270,000
Accounts receivable 800,000
Land 2,930,000
Building 19,000,000
Machinery 46,000,000
Trademark 8,000,000
Research and development asset 14,000,000
Accounts payable (1,000,000)
Total identifiable net asset fair value $90,000,000 (ASC 805-20-30-1)
3. What is the acquisition-date value assigned to the 10 percent noncontrolling

interest? What are the noncontrolling interest valuation alternatives available
under IFRS?
Under U.S. GAAP, the acquisition-date noncontrolling interest is measured at
its fair value. In this case, there are no readily available market values for the
noncontrolling shares so Q-Car has relied on other valuation techniques to
arrive at an estimated fair value of $11,000,000.
IFRS allows two alternative measures for the noncontrolling interest. The first
is identical to the U.S. measure. The second alternative uses the
noncontrolling interest percentage of the fair value of the subsidiary’s
identifiable net assets. In this case, the second alternative provides a value of
$9,000,000 ($90,000,000 x 10%).
4. Under U.S. GAAP, what amount should Q-Car recognize as goodwill from the
acquisition? What alternative valuations are available for goodwill under IFRS?
Goodwill under U.S. GAAP (ASC 805-30-30-1) and IFRS alternative 1 (IFRS 3 IN 8):
Consideration transferred (above) $ 97,000,000
Acquisition-date noncontrolling interest fair value 11,000,000
Acquisition-date value assigned to subsidiary $108,000,000
Net assets acquired fair value (above) 90,000,000
Goodwill $ 18,000,000
Goodwill under IFRS alternative 2:
Consideration transferred (above) $ 97,000,000
Acquisition-date NCI value assigned (above) 9,000,000
Acquisition-date value assigned to subsidiary $106,000,000
Net assets acquired fair value (above) 90,000,000
Goodwill $ 16,000,000

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CHAPTER 4

CONSOLIDATED FINANCIAL STATEMENTS

III. Consolidations involving a noncontrolling interest—subsequent to the date of acquisition

V. Sales of subsidiary stock

Answer to Discussion Question:

From the Berkshire Hathaway 2012 annual 10-K report:

2. Acquisition method = $220,000 (fair value)

3. D In consolidating the subsidiary's figures, all intra-entity balances must be eliminated in

4. C An asset acquired in a business combination is initially valued at 100%

6. B Combined revenues......................................................................... $1,100,000

7. C Consideration transferred by Pride................................................. $540,000

Combined revenues.......................................................................... $783,000

8. A Under the equity method, consolidated RE = parent’s RE.

10. A Amie, Inc. fair value at July 1, 2015:

12. B Fair value of 30% noncontrolling interest on April 1..................... $165,000

13. C Proceeds of $80,000 less $64,000 (⅓ × $192,000) book value = $16,000

14. B Combined revenues.......................................................................... $1,300,000

15. C Subsidiary net income

16. A West trademark balance................................................................... $260,000

18. D Park noncurrent assets................................................................................ $90,000

21. C Park stockholders' equity............................................................................ $80,000

22. (15 minutes) (Compute consolidated net income and noncontrolling

b. Starr fair value............................................................................................. $1,200,000

Noncontrolling interest fair value January 1, 2014 (above)...................... $75,000

a. Stayer’s technology processes:

c. Controlling interest in consolidated net income:

Net income–Johnsonville $650,000

Johnsonville’s separate net income $650,000

d. Net income attributable to noncontrolling interest:

Patterson’s consideration transferred ($31.25 × 80,000 shares)....................... $2,500,000

d. Soriano’s total fair value January 1................................................................. $3,100,000

e. Combined revenues............................................................................... $4,400,000

Patterson’s revenues........................................................................ $3,000,000

f. Fair value of noncontrolling interest January 1.................................. $ 600,000

g. If Soriano’s acquisition-date total fair value was $2,250,000, then a bargain

Collective fair values of Soriano’s net assets................................................... $2,900,000

a. Investment in Sellinger 445,000

Acquisition-date fair value ($1,141,000 ÷ .7) $1,630,000

b. Initial value for 70% acquisition $1,141,000

a. Acquisition-date total fair value .......................... $594,000

Consolidated figures following January 1 acquisition date:

b. Consolidated figures following April 1 acquisition date:

(1) $900,000 Parker revenues plus $450,000 of post-acquisition Sawyer revenues

Fair value of company (given) $60,000

a. Goodwill allocation: Parflex NCI

Equity in Eagle’s earnings:

c. December 31, 2015 Parflex Eagle Adjustments NCI Consolidated

Depreciation expense 191,200 67,000 E 2,000 260,200

Retained earnings, 1/1 (500,000) (278,000) S 278,000 (500,000)

Cash and receivables 135,000 82,000 217,000

Liabilities (722,900) (55,000) (777,900)

a. Amsterdam fair value implied by price paid by Morey

b. As long as control is maintained, the acquisition method considers

Posada’s investment book value 10/1/15

c. Because Posada continues to hold 6,000 shares of Sabathia, control is still

Noncontrolling interest (NCI) fair value January 1, 2013 $210,000

2014 NI to noncontrolling interest...................... $27,000

2015 Net income to noncontrolling interest...... $31,200

Worksheet adjustment S..................................................................... $170,400

a. Schedule 1—Fair Value Allocation and Excess Amortizations

Consideration transferred by Miller ......... $664,000

b. $150,000 (see schedule 1 above)

Entry (A)—no control premium