ACCT 8130, Prof.

Siva Nathan
Solutions for Class Problem for Chapter 3 (Hoyle)

Revised Summer 2018

a. An allocation of the acquisition price (based on the fair value of the shares
issued) must be made first.
Purchase Price (9,000 shares x $15) ................................ $135,000
Book Value ........................................................................ (100,000
Excess of purchase price over book value ........................ $ 35,000
Allocation to specific accounts based on fair value:
Equipment $5,000
Customer List $30,000 $35,000
Goodwill $0

b.
Excess fair value assigned to specific Remaining Annual excess
accounts based on fair value life amortizations
Equipment ........................... $5,000 5 yrs. $1,000
Customer List .........................30,000 10 yrs. 3,000
$4,000
c.

Equity Method Journal Entries for 2017 and 2018:

2017 2018
Investment in Turner 135,000
Common Stock (par value) 90,000
APIC 45,000

Investment in Turner 110,000 Investment in Turner 130,000

Equity in Subsidiary Earnings 110,000 Equity in Subsidiary Earnings 130,000
Net Income of Turner = 230 – Net Income of Turner = 280 –
120 = 110) 150 = 130

Cash 50,000 Cash 40,000

Investment in Turner 50,000 Investment in Turner 40,000

Equity in Subsidiary Earnings 4,000 Equity in Subsidiary Earnings 4,000

Investment in Turner 4,000 Investment in Turner 4,000
(Excess Amortization) (Excess Amortization)

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d.

If you do the T-Account for Investment in Turner based on the journal entries above, the
balance in the T-account on 12/31/2018 will be $277,000 as seen below:
Acquisition-date fair value................................................... $135,000
2017 Income accrual ......................................................... 110,000
2017 Dividends declared by Turner ................................... (50,000)
2017 Amortizations (above) ............................................... (4,000)
2018 Income accrual ......................................................... 130,000
2018 Dividends declared by Turner ................................... (40,000)
2018 Amortizations ............................................................ (4,000
Investment in Turner account balance 12/31/18................ $277,000

e. Stand-alone Net income of Haynes (700-460)................... $240,000

Net Income of Turner (280 – 150)...................................... 130,000
Excess Depreciation expense............................................ (1,000)
Excess Amortization expense............................................. (3,000
Consolidated net income 2018 ..................................... $366,000

Notes for (e):

See Exhibit 3.7 (pg. 101)
Consolidated Net Income
= Net Income of Parent
= Stand Alone Net Income of Parent + Equity in Subsidiary Earnings
= Stand Alone Net Income of Parent + Net Income of Subsidiary – Excess
Amortizations

f. Equipment balance Haynes ............................................... $500,000

Equipment balance Turner ................................................ 300,000
Allocation based on fair value (above) .............................. 5,000
Excess depreciation/amortization for 2017 and 2018 ...... (2,000
Consolidated equipment—December 31, 2018................. $803,000

Notes for (f):

You can also calculate the balance in the Equipment account in the following
manner:
In the [A] journal entry in 2018 (Year 2), you would have debited the Equipment
account for: 5,000 – 1,000 = 4,000
In the [E] journal entry you would have credited the Equipment account for
$1,000.
So balance in Equipment account = 500,000 + 300,000 + 4,000 – 1,000 =
803,000

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