Assignment 1 Acounting 2011 (Repaired)

Answer # 1
Date Account Dr. Cr.

1/1/2011 Investment in McLauchlin $70,000
Cash 70,000
To record investment made in
McLauchin
12/31/2011 Cash 3,500

Dividend Income 3,500
To record receipt of dividend
Answer # 2
(a) Purchase price ( 36 x 2500) = $ 90,000

Fair value of net Assets = 75,000
Good Will = $ 15,000
(b) Clark Company should make the following Journal entry for
Acquisition:

1/1/2012 Fixed Assets 95,000
Good Will 15,000
Liabilities 20,000
Common shares 90,000
(c) After the Acquisition, the balance sheet of Clark Company will be as
follows:
Cash $ 100,000 Liabilities $120,000

Fixed Assets 395,000 Common shares 290,000
Good Will 15,000 Retained 100,000
Earnings
TOTAL $510,000 TOTAL $510,000
Answer # 4
(a)
P Company should then make the following journal entry to record the acquisition:
12/31/2011 Investment in S Company 98,000
Cash 98,000
(b) The calculation of the acquisition differential is as follows:
Cost of 100% of S Company $98,000
Assets of S Company $100,000
Liabilities of S Company 30,000
BV of Net Assets of S Company 70,000
P Company’s Ownership 100% 70,000
Acquisition Differential 28,000
(c) The allocation of the acquisition differential is as follows:
Acquisition Differential $28,000
(Fair Value – Book Value)x100%

Inventory (21,000-20,000)x100% = +1,000
Plant (73,000-60,000)x100% = +13,000
Subtotal 14,000
Long-term Debt (19,000-20,000)x100% = -1,000 15,000
Goodwill 13,000
(d)
12/31/2011 Common Stock (S) 50,000
Retained Earnings (S) 20,000
Investment in S Company 98,000
12/31/2011 Inventory 1,000
Plant 13,000
Goodwill 13,000
Long-term Debt 1,000

(f) Consolidated Balance sheet for December 31, 2011.
P Co. S Co. Total E&A Dr. E&A Cr. Cons. B.S.

Cash 2,000 10,000 12,000 12,000
Acc. Rec. 100,000 10,000 110,000 110,000
Inventory 100,000 20,000 120,000 1,000(2) 121,000
Plant 200,000 60,000 260,000 13,000(2) 273,000
Inv. In S 98,000 98,000 98,000(1) 0
Acq. Diff. 28,000(1) 28,000(2) 0
Goodwill 13,000(2) 13,000
Total A 500,000 100,000 600,000 529,000
Curr. Liab. 50,000 10,000 60,000 60,000
LT Debt 200,000 20,000 220,000 1,000(2) 219,000
Com. St. 150,000 50,000 200,000 50,000(1) 150,000
Ret. Earn. 100,000 20,000 120,000 20,000(1) 100,000
Total L&E 500,000 100,000 600,000 126,000 126,000 529,000
Answer # 5
(a)

Cash 79,000
Inventory (21,000-20,000)x100% = +1,000
Plant (73,000-60,000)x100% = +13,000
Subtotal 14,000
Long-term Debt (19,000-20,000)x100% = -1,000 15,000

Goodwill To be recorded as a gain on purchase -6,000
(d)
12/31/2011 Common Stock (S) 50,000
12/31/2011 Inventory 1,000
Plant 13,000
Retained Earnings (P) gain on purchas 6,000
(f) Consolidated Balance sheet for December 31, 2011.
P Co. S Co. Total E&A Dr. E&A Cr. Cons. B.S.

Cash 21,000 10,000 31,000 31,000
Acc. Rec. 100,000 10,000 110,000 110,000
Inventory 100,000 20,000 120,000 1,000(2) 121,000
Plant 200,000 60,000 260,000 13,000(2) 273,000
Inv. In S 79,000 79,000 79,000(1) 0
Acq. Diff. 9,000(1) 9,000(2) 0
Total A 500,000 100,000 600,000 535,000
Curr. Liab. 50,000 10,000 60,000 60,000
LT Debt 200,000 20,000 220,000 1,000(2) 219,000
Com. St. 150,000 50,000 200,000 50,000(1) 150,000
Ret. Earn. 100,000 20,000 120,000 20,000(1) 6,000(2) 106,000
Total L&E 500,000 100,000 600,000 94,000 94,000 535,000
Answer # 6
(a)
Cash 77,000

Implied Cost of a 100% Investment in S 110,000

Company (77,000/.70)
BV of Net Assets of S Company 70,000 70,000

Inventory (21,000-20,000)x100% = +1,000
Plant (73,000-60,000)x100% = +13,000
Subtotal 14,000
Long-term Debt (19,000-20,000)x100% = -1,000 15,000
Goodwill 25,000
(d) The balance of the non-controlling interest is calculated as follows:

Implied Value of 100% Investment in S Company $110,000
Non-Controlling Shareholders Percentage 30%
Non-Controlling Interest $33,000
(e) The consolidated balance sheet
Cons. B.S. Calculations Balance

Cash (100,000 – 77,000) + 10,000 $33,000
Acc. Rec. 100,000 + 10,000 110,000
Inventory 100,000 + 20,000 + 1,000 121,000
Plant 200,000 + 60,000 + 13,000 273,000
Goodwill 0 + 0 + 25,000 25,000
Total Assets 562,000
Current 50,000 + 10,000 $60,000

Liabilities
L.T. Debt 200,000 + 20,000 -1,000 219,000
Total 279,000
Liabilities
Common 150,000
Stock
Ret. 100,000
Earnings
Non- 33,000
controlling
Interest
Total Equity 283,000
Total L&E 562,000
Answer # 7
(a)
Cash 76,000

Less: Old Goodwill of S Company 10,000
Adjusted Net Assets of S Company 60,000
c) The allocation of the acquisition differential is as follows:
Inventory (21,000-20,000)x100% = +1,000
Plant (73,000-60,000)x100% = +13,000
Subtotal 14,000
Long-term Debt (19,000-20,000)x100% = -1,000 15,000
Goodwill 1,000
(d) Entry to eliminate the subsidiary’s goodwill.
12/31/2011 Retained Earnings (S) 10,000
Old Goodwill 10,000

(e) Entry to eliminate the parent’s investment in the subsidiary and the shareholder
accounts of the subsidiary
12/31/2011 Common Stock (S) 50,000
(f) Entry to allocate the acquisition differential
12/31/2011 Inventory 1,000
Plant 13,000
New Goodwill 1,000


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Answer # 1

Date Account Dr. Cr.

12/31/2011 Cash 3,500

(a) Purchase price ( 36 x 2500) = $ 90,000

Date Account Dr. Cr.

Cash $ 100,000 Liabilities $120,000

Date Account Dr. Cr.

12/31/2011 Investment in S Company 98,000

(b) The calculation of the acquisition differential is as follows:

Cost of 100% of S Company $98,000

Assets of S Company $100,000

Liabilities of S Company 30,000

BV of Net Assets of S Company 70,000

P Company’s Ownership 100% 70,000

Acquisition Differential 28,000

(c) The allocation of the acquisition differential is as follows:

Acquisition Differential $28,000

(Fair Value – Book Value)x100%

Plant (73,000-60,000)x100% = +13,000

Long-term Debt (19,000-20,000)x100% = -1,000 15,000

Date Account Dr. Cr.

12/31/2011 Common Stock (S) 50,000

Retained Earnings (S) 20,000

Acquisition Differential 28,000

Investment in S Company 98,000

Date Account Dr. Cr.

12/31/2011 Inventory 1,000

Long-term Debt 1,000

Acquisition Differential 28,000

P Co. S Co. Total E&A Dr. E&A Cr. Cons. B.S.

Date Account Dr. Cr.

12/31/2011 Investment in S Company 79,000

(b) The calculation of the acquisition differential is as follows:

Cost of 100% of S Company $79,000

Assets of S Company $100,000

Liabilities of S Company 30,000

BV of Net Assets of S Company 70,000

P Company’s Ownership 100% 70,000

Acquisition Differential 9,000

(c) The allocation of the acquisition differential is as follows:

Acquisition Differential $9,000

(Fair Value – Book Value)x100%

Inventory (21,000-20,000)x100% = +1,000

Plant (73,000-60,000)x100% = +13,000

Long-term Debt (19,000-20,000)x100% = -1,000 15,000

Date Account Dr. Cr.

12/31/2011 Common Stock (S) 50,000

Retained Earnings (S) 20,000

Acquisition Differential 9,000

Investment in S Company 79,000

Date Account Dr. Cr.

12/31/2011 Inventory 1,000

Long-term Debt 1,000

Retained Earnings (P) gain on purchas 6,000

Acquisition Differential 9,000

(f) Consolidated Balance sheet for December 31, 2011.

P Co. S Co. Total E&A Dr. E&A Cr. Cons. B.S.

Date Account Dr. Cr.

12/31/2011 Investment in S Company 77,000

(b) The calculation of the acquisition differential is as follows:

Implied Cost of a 100% Investment in S 110,000

Assets of S Company $100,000