Problem 3-2 (LO 2) Simple equity method adjustments, consolidated .docx

Problem 3-2 (LO 2) Simple equity method adjustments,
consolidated worksheet.
On January 1, 2015, Paro Company purchases 80% of the
common stock of Solar Company for $320,000. Solar has
common stock, other paid-in capital in excess of par, and
retained earnings of$50,000, $100,000, and $150,000,
respectively. Net income and dividends for two years for Solar
are as follows:
2015
2016
Net income
$60,000
$90,000
Dividends
20,000
30,000

On January 1, 2015, the only undervalued tangible assets of
Solar are inventory and the building. Inventory, for which FIFO
is used, is worth $10,000 more than cost. The inventory is sold
in 2015. The building, which is worth $30,000 more than book
value, has a remaining life of10 years, and straight-line
depreciation is used. The remaining excess of cost over book
value is attributed to goodwill.
Required
1. Using this information and the information in the
following trial balances on December 31, 2016, prepare a value
analysis and a determination and distribution of excess
schedule:
Paro Company
Solar Company
Inventory, December 31
100,000
50,000
Other Current Assets
136,000

180,000
Investment in Solar Company
400,000
Land
50,000
50,000
Buildingsand Equipment
350,000
320,000
Accumulated Depreciation
(100,000)
(60,000)
Goodwill

Other Intangibles
20,000
Current Liabilities
(120,000)
(40,000)
Bonds Payable
(100,000)
Other Long-Term Liabilities
(200,000)

Common Stock—Paro Company
(200,000)
Other Paid-In Capital in Excess of Par—Paro Company
(100,000)
Retained Earnings—Paro Company
(214,000)
Common Stock—Solar Company
(50,000)
Other Paid-In Capital in Excess of Par—Solar Company

(100,000)
Retained Earnings—Solar Company
(190,000)
Net Sales
(520,000)
(450,000)
Cost of Goods Sold
300,000
260,000
Operating Expenses
120,000

100,000
Subsidiary Income
(72,000)
Dividends Declared—Paro Company
50,000
Dividends Declared—Solar Company
30,000
Totals
0
0
2. Complete a worksheet for consolidated financial

statements for 2016. Include columns for eliminations and
adjustments, consolidated income, NCI, controlling retained
earnings, and consolidated balance sheet.
Problem 3-10 (LO3, 5) 100%, cost method worksheet, several
adjustments, third year.
Refer to the preceding information for Paulcraft’s acquisition of
Switzer’s common stock. Assume that Paulcraft pays $480,000
for 100% of Switzer common stock. Paulcraft uses the cost
method to account for its investment in Switzer. Paulcraft and
Switzer have the following trial balances on December 31, 2017
as shown on page 191.
Paulcraft
Switzer
Cash
100,000
110,000
Accounts Receivable
90,000

55,000
Inventory
120,000
86,000
Land
100,000
60,000
Investment in Switzer
480,000
Buildings
800,000
250,000

(220,000)
(80,000)
Equipment
150,000
100,000
(90,000)
(72,000)
Current Liabilities
(60,000)
(102,000)
Bonds Payable.

(100,000)
Common Stock
(100,000)
(10,000)
Paid-In Capital in Excess of Par
(900,000)
(90,000)
Retained Earnings, January 1, 2017
(315,000)
(182,000)
Sales
(800,000)
(350,000)
Cost of Goods Sold

450,000
210,000
Depreciation Expense—Buildings
30,000
15,000
Depreciation Expense—Equipment
15,000
14,000
Other Expenses
140,000
68,000
Interest Expense

8,000
Dividend Income
(10,000)
Dividends Declared
20,000
10,000
Totals
0
0
Required
1. Prepare a value analysis and a determination and
distribution of excess schedule for the investment in Switzer.
2. Complete a consolidated worksheet for Paulcraft
Corporation and its subsidiary Switzer Corporation as of
December 31, 2017. Prepare supporting amortization and
income distribution schedules.
Worksheet 3-2

Company P:
January 1, 2015, balance
$123,000
Net income, 2015 (including Company P’s share of subsidiary
income under simple equity method)
62,500*
Balance, January 1, 2016
$185,500
*
Company P’s own 2015 net income ($100,000 revenue −
$60,000 expenses) + Company P’s share of Company S 2015,
$25,000 net income ($25,000 × 90%) = $40,000 + $22,500 =
$62,500.
Company S:
January 1, 2015, balance

$ 70,000
Net income, 2015
25,000
Dividends declared
(10,000)
Balance, January 1, 2016
$ 85,000
As before, entry (CY1) eliminates the subsidiary income
recorded by the parent, and entry (CY2) eliminates the
intercompany dividends. Neither subsidiary income nor
dividends declared by the subsidiary to the parent should remain
in the consolidated statements. In journal form, the entries are
as follows:

Create date alignment and eliminate current-year subsidiary
income:
(CY1)
Investment in Company S
10,800
Subsidiary Loss
10,800
(CY2)

4,500
Dividends Declared (Company S account)
4,500
At this point, the investment account balance is returned to
$148,500 ($133,200 on the trial balance + $10,800 loss +
$4,500 dividends), which is the balance on January 1, 2016.
Date alignment now exists, and elimination of the investment
account may proceed. Entry (EL) eliminates 90% of the
subsidiary equity accounts against the investment account.
Entry (EL) differs in amount from the prior year’s (2015) entry
only because Company S’s retained earnings balance has
changed. Always eliminate the subsidiary’s equity balances as
they appear on the worksheet, not in the original D&D schedule.
In journal form, entry (EL) is as follows:
Eliminate investment account at beginning-of-year balance:

(EL)
Common Stock—Company S (90%)
45,000
Retained Earnings, January 1, 2016—Company S (90%)
76,500

121,500
Entries (D) and (NCI) are exactly the same as they were on the
2015 worksheet. We are always adjusting the subsidiary
accounts as of the acquisition date. It will be necessary to make
this same entry every year until the markup caused by the
purchase is fully amortized or the asset is sold. In entry form,
entry (D)/(NCI) is as follows:
Distribute excess of cost(patent):
(D)/(NCI)
Patent
30,000

27,000
NCI (Retained Earnings—Company S)
3,000
Finally, entry (A) includes $3,000 per year amortization of the
patent for 2015 and 2016. The expense for 2015 is charged to
Company P retained earnings and the NCI in the 90%/10% ratio.
The charge is made to both interests because the asset
adjustment was made to both interests. In journal form, the
entry is as follows:
Amortize patent for current and prior year:

(A)
Retained Earnings, January 1, 2016—Company P
2,700
NCI (Retained Earnings—Company S)
300
Patent Amortization Expense (for current year)
3,000

Patent
6,000
Note that the 2017 worksheet will include three total years of
amortization, since the entries made in prior periods’
worksheets have not been recorded in either the parent’s or
subsidiary’s books. Even in later years, when the patent is past
its 10-year life, it will be necessary to use a revised entry (D),
which would adjust all prior years’ amortizations to the patent
as follows:
Retained Earnings—Company P (10 years × $2,700)
27,000
NCI
3,000
Investment in Company S (the excess)

30,000
Note that the original D&D schedule prepared on the date of
acquisition becomes the foundation for all subsequent
worksheets. Once prepared, the schedule is used without
modification.
REFLECTION
Date alignment is needed before an investment can be
eliminated.
For an equity method investment, date alignment means
removing current-year entries to return to the beginning-of-year
investment balance.
All amortizations of excess resulting from the consolidations
process are adjusted to the subsidiary’s IDS.
Many distributions of excess must be followed by
amortizations that cover the current and prior years.
The consolidated net income derived on a worksheet is
allocated to the controlling and noncontrolling interests using
an income distribution schedule.
Each year’s consolidation procedures begin as if there had
never been a previous consolidation.
Effect of Cost Method on Consolidation
OBJECTIVE 3
Complete a consolidated worksheet using the cost method for
the parent’s investment account.
Recall that parent companies often may choose to record their
investments in a subsidiary under the cost method, whereby the
investments are maintained at their original costs. Income from
the investments is recorded only when dividends are declared by
the subsidiary. The use of the cost method means that the

investment account does not reflect changes in subsidiary
equity. Rather than develop a new set of procedures for the
elimination of an investment under the cost method, the cost
method investment will be converted to its simple equity
balance at the beginning of the period to create date alignment.
Then, the elimination procedures developed earlier can be
applied.
Exercise 3-1 PartialName of Company Being AcquiredHuran
Company
Carol Fischer: Insert Name of Company Being Acquired in this
Cell.
Name of Acquiring CompanyCardinal Company
Carol Fischer: Insert the Name of the Acquiring Company in
this cell.
Date of AcquisitionJanuary 1, 2015
Carol Fischer: Insert the Date of Acquisition in this Cell.
Current YearDate of AcquisitionTrial BalanceHuran
CompanyCardinal CompanyHuran CompanyBookMarket
Carol Fischer: Insert all market values even if they are the
same as the fair values.
LifeAssetsCash
Carol Fischer: Insert Current Assets in Cell A8 through A13.
Cell A8 is reserved for Cash.
InventoryCurrent Assets60,00060,000Investment in Subsidiary
Land
Carol Fischer: Row 16 is reserved for the Land Account.
100,000100,000Equipment

Carol Fischer: Reserved for a Depreciable Fixed Asset
350,000240,0005Accumulated Depreciation
Carol Fischer: Reserved for Accumulated Depreciation
(150,000)GoodwillTotal
Assets360,000400,000LiabilitiesAccounts Payable
Carol Fischer: Rows 31, 32, and 33 are reserved for Current
Liabilities.
(60,000)(60,000)
Carol Fischer: Rows 34, 35, and 36 are reserved for Long-Term
Liabilities.
Row 34 is for Bonds or Long-Term Notes Payable and Row 35
is for any premium or disount on the notes or bonds.
this cell.
Carol Fischer: Reserved for Accounts Receivable

Carol Fischer: Do Not insert an account in this cell.
Carol Fischer: Row 17 is reserved for a Depreciable Fixed
Asset
Carol Fischer: Reserved for Accumulated Depreciaion.
Carol Fischer: Reserved for a Depreciable Fixed Asset.
Carol Fischer: Rows 23 and, 24, are reserved for intangibles
other than goodwill. This intangible may have differing book
and market values.
Carol Fischer: Reserved for an Intangible other than goodwill
where book and market values are identical.
Carol Fischer: This Cell should be left Blank

Liabilities.
Total Liabilities(60,000)(60,000)Equity Acquired
CompanyCommon Stock(50,000)Paid-in Capital in Excess of
Par(100,000)Retained Earnings(150,000)Equity Acquiring
CompanyCommon StockPaid-in Capital in Excess of
ParRetained EarningsTotal Equity(300,000)Total Liabilities and
Equity(360,000)Net Assets at Market of Acquired
Co.340,000Dividends Declared Acquired CompanyDividends
Declared Acquiring CompanySalesCost of Goods
SoldDepreciation Expense of-Equipment-Amortization Expense
of---Other ExpensesInterest ExpenseSubsidiary
IncomeTotalBalancesBalancesBalancesPurchase
PriceCash420,000Number of shares exchangedPar value of a
share of stockMarket value of a share of stockMarket value of
stock exchanged-Total purchase price420,000Ownership Interest
enter as .7 for 70%0.80Goodwill Applicable to NCIImplied
Value of NCI Interest105,000.00Estimated Value of NCI
interest if not the implied proportional amount--Enter amount or
0- 0Method of Accounting for Investment--Enter Capital C for
Cost or Capital E for EquityEYears since Acquisition- 0Value
AnalysisCompany Fair ValueParent PriceNCI ValueCompany
Fair Value525,000420,000105,000Fair Value of Net Assets
Excluding
Goodwill340,000272,00068,000Goodwill185,000148,00037,000
Gain on Acquisition-Determination and Distribution of Excess
ScheduleImplied Company ValueParent PriceNCI ValueFair
Value of Company525,000420,000105,000Less Book Value of
Interest AcquiredCommon Stock(50,000)Paid-in Capital in
Excess of Par(100,000)Retained Earnings(150,000)Total
Equity(300,000)Interest Acquired0.800.20Book
Value(240,000)(60,000)Excess of Fair Value over Book
Value180,00045,000Elimination EntryKeyCommon
Stock40,000ELPaid-in Capital in Excess of
Par80,000ELRetained Earnings120,000ELInvestment in
Subsidiary(240,000.00)ELAdjustment to Identifiable

AccountsDebit (Credit)KeyLifeInventory-D-Current Assets-D-
Land-D--D-Equipment40,000D5--D---D---D-
Goodwill185,000D---D---D---D-Investment in Subsidiary
(180,000)DGain Taken to Acquiring Co. RE/Income-
0DAcquired Company RE(45,000)DCheck-Amortization
ScheduleAccount AdjustmentAnnual AmountCurrent YearPrior
YearsTotalInventory---Equipment8,0008,000-8000-----------
Total8,000-8000Amortization EntryDebit (Credit)KeyCost of
Goods SoldADepreciation Expense ofA-AEquipment8,000A-
AAmortization Expense ofA-A-AInterest ExpenseAAcquired
Company RE(1,600)AAcquiring Company
RE(6,400)AInventory-A--AAccumulated Depreciation-A--A--A-
-A--A--ATotal-Method Adjustment ScheduleDebit
(Credit)KeyIs Adjustment Necessary?NOAdjustment to
Investment Account-CVAdjustment to Retained Earnings
Account-CVDate Alignment ScheduleDebit
(Credit)KeyAdjustment to Subsidiary Income Account-
CYAdjustment to Subsidiary Dividend Account-CYAdjustment
to Investment Account under Equity Method -CYConsolidated
WorksheetTrial BalanceEliminationsCardinal CompanyHuran
CompanyKeyDebitCreditKeyConsolidated Net IncomeNon
Control InterestControlling Retained EarningsConsolidated
Balance SheetCash-------Inventory---Current Assets--D00D------
---Investment in Subsidiary --
(120000)EL(300,000)D0(180000)DCV00CVCY00CYLand--
00D----D00D----A00A-Equipment--
D400000D40,000Accumulated Depreciation--A00A----D00D----
A00A----D00D-A00A---D00D-A00A----Goodwill--
D1850000D185,000Accounts Payable--------------D00D----
D00D-A00A---D00D-A00ACommon Stock--
EL40,00040,000Paid-in Capital in Excess of Par--
EL80,00080,000Retained Earnings--EL-(45000)D(46,600)A-
(1600)ACommon Stock---Paid-in Capital in Excess of Par---
Retained Earnings--0D(6,400)A0(6400)ACV-0CVDividends
Declared Acquired Company---CY-Dividends Declared
Acquiring Company---Sales---Cost of Goods Sold--A-A-

Depreciation Expense of------A-A-Equipment--A8,000-A8,000--
-A-A-Amortization Expense of------A-A----A-A-----Other
Expenses---Interest Expense--A-A-Subsidiary Income--
CY00CY-Gain on Acquisition of Business0D-
TotalBalancesBalances353000(353000)8,000NCI
Share(1,600)1,600Controlling
Share(6,400)6,400NCI75,00075,000Controlling Retained
Earnings--(0)Income Distribution SchedulesHuran
CompanyInternally Generated Net (Income) or Loss-Current
Year Amortizations8,000Adjusted (Income) or Loss8,000NCI
Share(1,600)Controlling Share6,400Cardinal CompanyInternally
Generated Net Income-Gain on Acquisitin of Business-
Controlling Share of Subsidiary6,400Total6,400
Exercise 3-2 Partial Name of Company Being AcquiredShaw
Company
Cell.
Name of Acquiring CompanyMast Corporation
this cell.
Current YearDate of AcquisitionTrial BalanceShaw
CompanyMast CorporationShaw CompanyBookMarket
LifeAssetsCash
Inventory40,00050,0001Current Assets80,00080,000Investment

in Subsidiary Land
100,000100,000Buildings and Equipment
Asset
200,000300,00020Accumulated Depreciation
-Patent
and market values.
30,00050,00010GoodwillTotal
Assets450,000580,000LiabilitiesCurrent Liabilities
Liabilities.
(50,000)(50,000)
Liabilities.
this cell.

Asset

and market values.
Liabilities.
CompanyCommon Stock(50,000)Paid-in Capital in Excess of
Par(150,000)Retained Earnings(200,000)Equity Acquiring
ParRetained EarningsTotal Equity(400,000)Total Liabilities and
Equity(450,000)Net Assets at Market of Acquired
Co.530,000Dividends Declared Acquired CompanyDividends
SoldDepreciation Expense ofBuildings and Equipment--
Amortization Expense ofPatent--Other ExpensesInterest
ExpenseSubsidiary
Value of NCI Interest154,166.67Estimated Value of NCI
interest if not the implied proportional amount--Enter amount or
0- 0Method of Accounting for Investment--Enter Capital C for
Cost or Capital E for EquityEYears since Acquisition- 0Value
Excluding

Goodwill530,000397,500132,500Goodwill86,66765,00021,667G
ain on Acquisition-Determination and Distribution of Excess
Excess of Par(150,000)Retained Earnings(200,000)Total
Stock37,500ELPaid-in Capital in Excess of
Par112,500ELRetained Earnings150,000ELInvestment in
AccountsDebit (Credit)KeyLifeInventory10,000D1Current
Assets-D-Land-DBuildings and Equipment100,000D20--D---D-
Patent20,000D10--D-Goodwill86,667D---D---D---D-Investment
in Subsidiary (162,500)DGain Taken to Acquiring Co.
RE/Income- 0DAcquired Company RE(54,167)DCheck-
Amortization ScheduleAccount AdjustmentAnnual
AmountCurrent YearPrior YearsTotalInventory10,00010,000-
10000-Buildings and Equipment5,0005,000-5000-----
Patent2,0002,000-2000-------Total17,000-17000Amortization
EntryDebit (Credit)KeyCost of Goods Sold10,000ADepreciation
Expense ofABuildings and Equipment5,000A-A-AAmortization
Expense ofAPatent2,000A-AInterest ExpenseAAcquired
Company RE(4,250)AAcquiring Company
RE(12,750)AInventory-AAccumulated Depreciation-A--A--
APatent-A--A--A--ATotal-Method Adjustment ScheduleDebit
WorksheetTrial BalanceEliminationsMast CorporationShaw

Balance SheetCash-------Inventory---Current Assets--D00D------
---Investment in Subsidiary --
(150000)EL(312,500)D0(162500)DCV00CVCY00CYLand--
00D-Buildings and Equipment--
D1000000D100,000Accumulated Depreciation--A00A----D00D-
---A00A----D00D----A00A-Patent--D200000D20,000A00A---
D00D-A00A----Goodwill--
D86666.66666666660D86,667Current Liabilities--------------
D00D----D00D-A00A---D00D-A00ACommon Stock--
EL37,50037,500Paid-in Capital in Excess of Par--
EL112,500112,500Retained Earnings--EL-(54167)D(58,417)A-
(4250)ACommon Stock---Paid-in Capital in Excess of Par---
Retained Earnings--0D(12,750)A0(12750)ACV-0CVDividends
Acquiring Company---Sales---Cost of Goods Sold--A10,000-
A10,000Depreciation Expense of---Buildings and Equipment--
A5,000-A5,000---A-A----A-A-Amortization Expense of---
Patent--A2,000-A2,000---A-A-----Other Expenses---Interest
Expense--A-A-Subsidiary Income--CY00CY-Gain on
Acquisition of Business0D-
TotalBalancesBalances373666.666666667(383667)17,000NCI
Share(4,250)4,250Controlling
Share(12,750)12,750NCI95,83395,833Controlling Retained
Earnings--(10,000)Income Distribution SchedulesShaw
CompanyInternally Generated Net (Income) or Loss-Current
Year Amortizations17,000Adjusted (Income) or Loss17,000NCI
Share(4,250)Controlling Share12,750Mast
CorporationInternally Generated Net Income-Gain on Acquisitin
of Business-Controlling Share of Subsidiary12,750Total12,750
Exercise 3-3 Partial Name of Company Being AcquiredSargent
Company
Cell.
Name of Acquiring CompanyParker Company

this cell.
Current YearDate of AcquisitionTrial BalanceSargent
CompanyParker CompanySargent CompanyBookMarket
LifeAssetsCash
InventoryCurrent
Assets100,000100,00010,000130,000Investment in Subsidiary
316,000Depreciable Fixed Assets
Asset
200,000250,00010400,000200,000Accumulated Depreciation
-(106,000)(20,000)GoodwillTotal
Liabilities.
(50,000)(50,000)(60,000)(40,000)
Liabilities.

this cell.
Asset

and market values.
Liabilities.
CompanyCommon Stock(100,000)(100,000)Paid-in Capital in
Excess of ParRetained Earnings(150,000)(150,000)Equity
Acquiring CompanyCommon Stock(300,000)Paid-in Capital in
Excess of ParRetained Earnings(200,000)Total
Equity(250,000)Total Liabilities and Equity(300,000)Net Assets
at Market of Acquired Co.300,000Dividends Declared Acquired
Company5,000Dividends Declared Acquiring
CompanySales(150,000)(100,000)Cost of Goods
SoldDepreciation Expense ofDepreciable Fixed Assets--
Amortization Expense of---Other
Expenses110,00075,000Interest ExpenseSubsidiary
Income(20,000)TotalBalancesBalancesBalancesPurchase

Value of NCI Interest75,000.00Estimated Value of NCI interest
if not the implied proportional amount--Enter amount or 0-
0Method of Accounting for Investment--Enter Capital C for
Cost or Capital E for EquityEYears since Acquisition1.00Value
Excluding
Goodwill300,000240,00060,000Goodwill75,00060,00015,000Ga
in on Acquisition-Determination and Distribution of Excess
Excess of Par-Retained Earnings(150,000)Total
Stock80,000ELPaid-in Capital in Excess of Par-ELRetained
Earnings120,000ELInvestment in
AccountsDebit (Credit)KeyLifeInventory-D-Current Assets-D---
DDepreciable Fixed Assets50,000D10--D---D---D---D-
YearsTotalInventory-Depreciable Fixed
Assets5,0005,00005,000------------Total5,0000Amortization
EntryDebit (Credit)KeyCost of Goods SoldADepreciation
Expense ofADepreciable Fixed Assets5,000A-A-AAmortization
Expense ofA-A-AInterest ExpenseAAcquired Company RE-
AAcquiring Company RE-AInventory-AAccumulated
Depreciation(5,000)A--A--A--A--A--A--ATotal-Method
Adjustment ScheduleDebit (Credit)KeyIs Adjustment

Necessary?NOAdjustment to Investment Account-
CVAdjustment to Retained Earnings Account-CVDate
Alignment ScheduleDebit (Credit)KeyAdjustment to Subsidiary
Income Account20,000CYAdjustment to Subsidiary Dividend
Account(4,000)CYAdjustment to Investment Account under
Equity Method (16,000)CYConsolidated WorksheetTrial
BalanceEliminationsParker CompanySargent
Balance SheetCash-------Inventory---Current
Assets10,000130,000D00D140,000--------Investment in
Subsidiary 316,000-(200000)EL-
D0(100000)DCV00CVCY0(16000)CY---00D-Depreciable Fixed
Assets400,000200,000D500000D650,000Accumulated
Depreciation(106,000)(20,000)A0(5000)A(131,000)---D00D----
A00A----D00D----A00A----D00D-A00A---D00D-A00A----
Goodwill--D750000D75,000Current
Liabilities(60,000)(40,000)(100,000)-----------D00D----D00D-
A00A---D00D-A00ACommon Stock-
(100,000)EL80,000(20,000)Paid-in Capital in Excess of Par--
EL--Retained Earnings-
(150,000)EL120,000(25000)D(55,000)A-0ACommon
Stock(300,000)-(300,000)Paid-in Capital in Excess of Par---
Retained Earnings(200,000)-0D(200,000)A00ACV-
0CVDividends Declared Acquired Company-
5,000(4,000)CY1,000Dividends Declared Acquiring Company---
Sales(150,000)(100,000)(250,000)Cost of Goods Sold--A-A-
Depreciation Expense of---Depreciable Fixed Assets--A5,000-
A5,000---A-A----A-A-Amortization Expense of------A-A----A-
A-----Other Expenses110,00075,000185,000Interest Expense--
A-A-Subsidiary Income(20,000)-CY200000CY-Gain on
TotalBalancesBalances350000(350000)(60,000)NCI
Share4,000(4,000)Controlling
Share56,000(56,000)NCI(78,000)(78,000)Controlling Retained
Earnings(256,000)(256,000)BalancesIncome Distribution

SchedulesSargent CompanyInternally Generated Net (Income)
or Loss(25,000)Current Year Amortizations5,000Adjusted
(Income) or Loss(20,000)NCI Share4,000Controlling
Share(16,000)Parker CompanyInternally Generated Net
Income(40,000)Gain on Acquisitin of Business-Controlling
Share of Subsidiary(16,000)Total(56,000)
Exercise 3-4 Partial Name of Company Being AcquiredSargemt
Company
Cell.
this cell.
Current YearDate of AcquisitionTrial BalanceSargemt
CompanyParker CompanySargemt CompanyBookMarket
LifeAssetsCash
InventoryCurrent
320,000Depreciable Fixed Asset
Asset

Liabilities.
(50,000)(50,000)(80,000)
Liabilities.
this cell.

Asset
and market values.
Liabilities.

SoldDepreciation Expense ofDepreciable Fixed Asset--
Excluding

DDepreciable Fixed Asset50,000D10--D---D---D---D-
Asset5,0005,000500010,000------------
Total5,0005000Amortization EntryDebit (Credit)KeyCost of
Goods SoldADepreciation Expense ofADepreciable Fixed
Asset5,000A-A-AAmortization Expense ofA-A-AInterest
ExpenseAAcquired Company RE1,000AAcquiring Company
RE4,000AInventory-AAccumulated Depreciation(10,000)A--A--
A--A--A--A--ATotal-Method Adjustment ScheduleDebit
(Credit)KeyAdjustment to Subsidiary Income
Account12,000CYAdjustment to Subsidiary Dividend
BalanceEliminationsParker CompanySargemt
(100000)DCV00CVCY0(4000)CY---00D-Depreciable Fixed
Asset400,000200,000D500000D650,000Accumulated
Depreciation(130,000)(40,000)A0(10000)A(180,000)---D00D---
-A00A----D00D----A00A----D00D-A00A---D00D-A00A----
Goodwill--D750000D75,000Current Liabilities(80,000)-
(80,000)-----------D00D----D00D-A00A---D00D-A00ACommon
Stock-(100,000)EL80,000(20,000)Paid-in Capital in Excess of
Par--EL--Retained Earnings-
(170,000)EL136,000(25000)D(58,000)A1,0000ACommon

Retained Earnings(260,000)-0D(256,000)A4,0000ACV-
10,000(8,000)CY2,000Dividends Declared Acquiring Company-
--Sales(200,000)(100,000)(300,000)Cost of Goods Sold--A-A-
Depreciation Expense of---Depreciable Fixed Asset--A5,000-
SchedulesSargemt CompanyInternally Generated Net (Income)
Exercise 3-5 Partial Name of Company Being AcquiredSargent
Company
Cell.
this cell.
Current YearDate of AcquisitionTrial BalanceSargent
CompanyParker CompanySargent CompanyBookMarket

LifeAssetsCash
InventoryCurrent
312,000Depreciable Fixed Assets
Asset
Liabilities.
(50,000)(50,000)(60,000)(40,000)
Liabilities.
this cell.

Asset

and market values.
Liabilities.
SoldDepreciation Expense ofDepreciable Fixed Assets--
Excluding

DDepreciable Fixed Assets50,000D10--D---D---D---D-
Assets5,0005,00005,000------------Total5,0000Amortization
EntryDebit (Credit)KeyCost of Goods SoldADepreciation
Expense ofADepreciable Fixed Assets5,000A-A-AAmortization
Expense ofA-A-AInterest ExpenseAAcquired Company RE-
AAcquiring Company RE-AInventory-AAccumulated
Depreciation(5,000)A--A--A--A--A--A--ATotal-Method
Adjustment ScheduleDebit (Credit)KeyIs Adjustment
Income Account16,000CYAdjustment to Subsidiary Dividend
BalanceEliminationsParker CompanySargent

D0(100000)DCV00CVCY0(12000)CY---00D-Depreciable Fixed
Assets400,000200,000D500000D650,000Accumulated
Depreciation(106,000)(20,000)A0(5000)A(131,000)---D00D----
A00A----D00D----A00A----D00D-A00A---D00D-A00A----
Goodwill--D750000D75,000Current
Liabilities(60,000)(40,000)(100,000)-----------D00D----D00D-
A00A---D00D-A00ACommon Stock-
(100,000)EL80,000(20,000)Paid-in Capital in Excess of Par--
EL--Retained Earnings-
(150,000)EL120,000(25000)D(55,000)A-0ACommon
Retained Earnings(200,000)-0D(200,000)A00ACV-
5,000(4,000)CY1,000Dividends Declared Acquiring Company---
Sales(150,000)(100,000)(250,000)Cost of Goods Sold--A-A-
Depreciation Expense of---Depreciable Fixed Assets--A5,000-
SchedulesSargent CompanyInternally Generated Net (Income)
Problem 3-2 Name of Company Being AcquiredSolar Company
Cell.

Name of Acquiring CompanyParo Company
this cell.
Current YearDate of AcquisitionTrial BalanceSolar
CompanyParo CompanySolar CompanyBookMarket
LifeAssetsCash
Inventory100,000Current Assets50,000Investment in Subsidiary
Land
Buildings and Equipment
Asset
150,000Accumulated Depreciation
Other Intangibles
and market values.
GoodwillTotal Assets300,000-LiabilitiesCurrent Liabilities

Liabilities.
Bonds Payable
Liabilities.
this cell.
Asset

and market values.
Liabilities.
Other Long-Term LiabilitiesTotal Liabilities-Equity Acquired
ParRetained EarningsEquity Acquiring CompanyCommon
StockPaid-in Capital in Excess of ParRetained EarningsTotal
Equity-Total Liabilities and Equity-Net Assets at Market of
Acquired Co.-Dividends Declared Acquired CompanyDividends

SoldDepreciation Expense ofBuildings and Equipment--
Amortization Expense ofOther Intangibles--Other
ExpensesInterest ExpenseSubsidiary
IncomeTotal300,000BalancesBalancesPurchase
PriceCashNumber of shares exchangedPar value of a share of
stockMarket value of a share of stockMarket value of stock
exchanged-Total purchase price-Ownership Interest enter as .7
for 70%Goodwill Applicable to NCIImplied Value of NCI
InterestERROR:#DIV/0!Estimated Value of NCI interest if not
the implied proportional amount--Enter amount or 0- 0Method
of Accounting for Investment--Enter Capital C for Cost or
Capital E for EquityEYears since AcquisitionValue
Fair ValueERROR:#DIV/0!-ERROR:#DIV/0!Fair Value of Net
Assets Excluding Goodwill---GoodwillERROR:#DIV/0!-
ERROR:#DIV/0!Gain on
AcquisitionERROR:#DIV/0!Determination and Distribution of
Excess ScheduleImplied Company ValueParent PriceNCI
ValueFair Value of CompanyERROR:#DIV/0!-
ERROR:#DIV/0!Less Book Value of Interest AcquiredCommon
Stock-Paid-in Capital in Excess of Par-Retained Earnings-Total
Equity-Interest Acquired- 01.00Book Value0-Excess of Fair
Value over Book Value-ERROR:#DIV/0!Elimination
EntryKeyCommon Stock-ELPaid-in Capital in Excess of Par-
ELRetained Earnings-ELInvestment in Subsidiary-
0ELAdjustment to Identifiable AccountsDebit
(Credit)KeyLifeInventory(100,000)D-Current Assets(50,000)D-
Land-DBuildings and Equipment(150,000)D---D---D-Other
Intangibles-D---D-GoodwillERROR:#DIV/0!D-Bonds Payable-
D---D-Other Long-Term Liabilities-D-Investment in Subsidiary
-DGain Taken to Acquiring Co.
RE/IncomeERROR:#DIV/0!DAcquired Company
REERROR:#DIV/0!DCheckERROR:#DIV/0!Amortization
YearsTotalInventory-Buildings and Equipment-----Other

Intangibles-----Other Long-Term Liabilities-
Total00Amortization EntryDebit (Credit)KeyCost of Goods
SoldADepreciation Expense ofABuildings and EquipmentA-A-
AAmortization Expense ofAOther IntangiblesA-AInterest
ExpenseAAcquired Company RE-AAcquiring Company RE-
AInventory-AAccumulated Depreciation-A--A--AOther
Intangibles-A--A--AOther Long-Term Liabilities-ATotal-
Method Adjustment ScheduleDebit (Credit)KeyIs Adjustment
Income Account-CYAdjustment to Subsidiary Dividend
Account-CYAdjustment to Investment Account under Equity
Method -CYConsolidated WorksheetTrial
BalanceEliminationsParo CompanySolar
Balance SheetCash-------Inventory---Current Assets--
D0(50000)D(50,000)--------Investment in Subsidiary --0EL-
D00DCV00CVCY00CYLand--00D-Buildings and Equipment--
D0(150000)D(150,000)Accumulated Depreciation--A00A----
D00D----A00A----D00D----A00A-Other Intangibles--D00D-
A00A---D00D-A00A----Goodwill--
DERROR:#DIV/0!ERROR:#DIV/0!DERROR:#DIV/0!Current
Liabilities-----------Bonds Payable--D00D----D00D-A00AOther
Long-Term Liabilities--D00D-A00ACommon Stock--EL--Paid-
in Capital in Excess of Par--EL--Retained Earnings--EL-
ERROR:#DIV/0!DERROR:#DIV/0!A-0ACommon Stock---Paid-
in Capital in Excess of Par---Retained Earnings--
ERROR:#DIV/0!DERROR:#DIV/0!A00ACV-0CVDividends
Depreciation Expense of---Buildings and Equipment--A-A----A-
A----A-A-Amortization Expense of---Other Intangibles--A-A----
A-A-----Other Expenses---Interest Expense--A-A-Subsidiary
Income--CY00CY-Gain on Acquisition of

BusinessERROR:#DIV/0!DERROR:#DIV/0!TotalBalancesBalan
cesERROR:#DIV/0!ERROR:#DIV/0!ERROR:#DIV/0!NCI
Share--Controlling
ShareERROR:#DIV/0!ERROR:#DIV/0!NCIERROR:#DIV/0!ER
ROR:#DIV/0!Controlling Retained
EarningsERROR:#DIV/0!ERROR:#DIV/0!ERROR:#DIV/0!Inco
me Distribution SchedulesSolar CompanyInternally Generated
Net (Income) or Loss-Current Year Amortizations0Adjusted
(Income) or Loss-NCI Share-Controlling Share-Paro
CompanyInternally Generated Net Income-Gain on Acquisitin
of BusinessERROR:#DIV/0!Controlling Share of Subsidiary-
TotalERROR:#DIV/0!
Problem 3-10Name of Company Being AcquiredSwitzer
Corporation
Cell.
Name of Acquiring CompanyPaulcraft Corporation
this cell.
Current YearDate of AcquisitionTrial BalanceSwitzer
CorporationPaulcraft CorporationSwitzer
CorporationBookMarket
LifeAssetsCash
Accounts Receivable

InventoryInvestment in Subsidiary Land
Buildings
Asset
Equipment
GoodwillTotal Assets--LiabilitiesCurrent Liabilities
Liabilities.
Bonds Payable
Liabilities.
this cell.

Asset

and market values.
Liabilities.
Discount on Bonds PayableTotal Liabilities--Equity Acquired
ParRetained EarningsEquity Acquiring CompanyCommon
StockPaid-in Capital in Excess of ParRetained EarningsTotal
Equity-Total Liabilities and Equity-Net Assets at Market of
Acquired Co.-Dividends Declared Acquired CompanyDividends
SoldDepreciation Expense ofBuildingsEquipment-Amortization
Expense of---Other ExpensesInterest ExpenseSubsidiary
PriceCashNumber of shares exchangedPar value of a share of
stockMarket value of a share of stockMarket value of stock
exchanged-Total purchase price-Ownership Interest enter as .7
for 70%Goodwill Applicable to NCIImplied Value of NCI
InterestERROR:#DIV/0!Estimated Value of NCI interest if not
the implied proportional amount--Enter amount or 0- 0Method
of Accounting for Investment--Enter Capital C for Cost or
Capital E for EquityYears since AcquisitionValue
Fair ValueERROR:#DIV/0!-ERROR:#DIV/0!Fair Value of Net
Assets Excluding Goodwill---GoodwillERROR:#DIV/0!-

ERROR:#DIV/0!Gain on
AcquisitionERROR:#DIV/0!Determination and Distribution of
Excess ScheduleImplied Company ValueParent PriceNCI
ValueFair Value of CompanyERROR:#DIV/0!-
ERROR:#DIV/0!Less Book Value of Interest AcquiredCommon
Stock-Paid-in Capital in Excess of Par-Retained Earnings-Total
Equity-Interest Acquired- 01.00Book Value0-Excess of Fair
Value over Book Value-ERROR:#DIV/0!Elimination
EntryKeyCommon Stock-ELPaid-in Capital in Excess of Par-
ELRetained Earnings-ELInvestment in Subsidiary-
0ELAdjustment to Identifiable AccountsDebit
(Credit)KeyLifeInventory-D---D-Land-DBuildings-D-
Equipment-D---D---D---D-GoodwillERROR:#DIV/0!D-Bonds
Payable-D-Discount on Bonds Payable-D---D-Investment in
Subsidiary -DGain Taken to Acquiring Co.
RE/IncomeERROR:#DIV/0!DAcquired Company
REERROR:#DIV/0!DCheckERROR:#DIV/0!Amortization
YearsTotalInventory-Buildings-Equipment-------Discount on
Bonds Payable---Total00Amortization EntryDebit
(Credit)KeyCost of Goods SoldADepreciation Expense
ofABuildingsAEquipmentA-AAmortization Expense ofA-A-
AInterest ExpenseAAcquired Company RE-AAcquiring
Company RE-AInventory-AAccumulated Depreciation-
AAccumulated Depreciation-A--A--A--ADiscount on Bonds
Payable-A--ATotal-Method Adjustment ScheduleDebit
WorksheetTrial BalanceEliminationsPaulcraft
CorporationSwitzer
CorporationKeyDebitCreditKeyConsolidated Net IncomeNon

Balance SheetCash---Accounts Receivable---Inventory------
D00D---------Investment in Subsidiary --0EL-
D00DCV00CVCY00CYLand--00D-Buildings--D00D-
Accumulated Depreciation--A00A-Equipment--D00D-
Accumulated Depreciation--A00A----D00D----A00A----D00D-
A00A---D00D-A00A----Goodwill--
DERROR:#DIV/0!ERROR:#DIV/0!DERROR:#DIV/0!Current
Liabilities-----------Bonds Payable--D00D-Discount on Bonds
Payable--D00D-A00A---D00D-A00ACommon Stock--EL--Paid-
in Capital in Excess of Par--EL--Retained Earnings--EL-
ERROR:#DIV/0!DERROR:#DIV/0!A-0ACommon Stock---Paid-
in Capital in Excess of Par---Retained Earnings--
ERROR:#DIV/0!DERROR:#DIV/0!A00ACV-0CVDividends
Depreciation Expense of---Buildings--A-A-Equipment--A-A----
A-A-Amortization Expense of------A-A----A-A-----Other
Expenses---Interest Expense--A-A-Subsidiary Income--
CY00CY-Gain on Acquisition of
BusinessERROR:#DIV/0!DERROR:#DIV/0!TotalBalancesBalan
cesERROR:#DIV/0!ERROR:#DIV/0!ERROR:#DIV/0!NCI
Share--Controlling
ShareERROR:#DIV/0!ERROR:#DIV/0!NCIERROR:#DIV/0!ER
ROR:#DIV/0!Controlling Retained
EarningsERROR:#DIV/0!ERROR:#DIV/0!ERROR:#DIV/0!Inco
me Distribution SchedulesSwitzer CorporationInternally
Generated Net (Income) or Loss-Current Year
Amortizations0Adjusted (Income) or Loss-NCI Share-
Controlling Share-Paulcraft CorporationInternally Generated
Net Income-Gain on Acquisitin of
BusinessERROR:#DIV/0!Controlling Share of Subsidiary-
TotalERROR:#DIV/0!

Problem 3-2 (LO 2) Simple equity method adjustments, consolidated .docx

Problem 3-2 (LO 2) Simple equity method adjustments, consolidated .docx

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