Preliminary computation Goodwill under entity theory $ 40,000 1.a. December 1, 2011 1a.

tity theory $ 40,000 1.a. December 1, 2011 1a. December 1, 2011 Comment: The contract receivable and payable
Total value of Sit implied by purchase price $1,800,000
Interest acquired in Sal: 36,000 shares 40,000 shares = 90% Undervalued plant assets $ 50,000 No entry is necessary No entry is necessary are both recorded instead of recording the contract
($1,440,000/80%)
Sal’s net assets under entity theory Excess over book value $ 90,000 b. December 31, 2011 b. December 31, 2011 net because Martin must deliver the euros to the
Noncontrolling interest percentage 20% exchange broker, net settlement is not allowed.
Noncontrolling interest $360,000 Implied value from purchase price: $1,000,000 Implied fair value (cost of interest $280,000 / 80%) Other Comprehensive Loss on forward contract (+Lo,-SE) 9,901
$350,000 October 2, 2011
Only the parent’s percentage of unrealized profits from upstream sales is $900,000/90% interest Income (-OCI,-SE) 9,901 Forward Contract (+L) 9,901
Book value of equity at 100% $260,000 Contract receivable $653,000
eliminated under parent company theory. Goodwill Forward Contract (+L) 9,901 Forward contract value 12/31/11
Contract payable $653,000
Subsidiary’s income of $400,000 10% noncontrolling interest $ 40,000 Entity theory Forward contract 12/31/11 ($1,000 - $980) x 500
Cost of 80% of interests $280,000 (1,000- 980) x 500 = $10,000/(1.005)2 = $10,000/(1.005)2 = $9,901 liability record contract to sell 1,000,000 euros
Less: Patent amortization ($140,000/10 years 10%) (1,400) Implied value $1,000,000 to exchange broker in 180 days for the
Less: Fair value and book value of net 855,000 Underlying equity (80% x book value of equity) $208,000 = $9,901 liability Firm Purchase Commitment (+A) 9,901
Noncontrolling interest share $ 38,600 Excess over book value $ 72,000 c. Settlement date February 28, 2012 forward rate of $.6530.
assets Gain on firm purchase commitment December 31, 2011
Goodwill $ 145,000 Undervalued plant assets (80% x $50,000) $(25,000) Forward Contract (-L) 9,901 (+Ga, +SE) 9,901
Implied fair value — $1,680,000 = patents at acquisition Contract payable 12,000
Parent company theory Alllocated to goodwill under parent company theory Forward Contract (+A)2,500 c. Settlement date February 28, 2012
Book value of 100% of identifiable net assets $1,680,000 $ 47,000 Exchange gain 12,000
Add: Patents at acquisition ($108,000/90%) 120,000 Cost of 90% interest $ 900,000 Other Comprehensive Forward Contract (-L) 9,901 adjust contract payable in euros to the
Total implied value 1,800,000 Fair values of net assets acquired ($855,000 90%) 769,500 Income (+OCI,+SE) 12,401 Forward Contract (+A) 2,500
Ping's portion of Singh's income (80% x $50,000) $ 40,000 Forward contract 2/28/12 90-day forward rate of $.6410.
Percent acquired 80% Goodwill $ 130,500 Gain on forward contract (+G,+SE) 12,401 March 31,2012
Traditional theory (same as parent theory) $ 130,500 Depreciation of excess (5 years x 80%) $ (4,000) ($1,000 - $1,005) x 500 = $2,500 asset. Forward contract value 2/28/12
Purchase price under entity theory $1,440,000 Income from Singh $ 36,000 Rice Inventory (+A) Contract payable 641,000
Investment income from Sal ($1,000 - $1,005) x 500 = $2,500 asset. Exchange loss 14,000
Purchase price — ($1,680,000 80%) = patents at acquisition ($1,005 x 500) 502,500 Loss on firm purchase
Equity theory Cash 655,000
Book value $1,680,000 80% = underlying equity $1,344,000 Cash (-A) 502,500 commitment (+Lo,-SE) 12,401
Ping's separate income $200,000 To record payment of 1,000,000 euros to
Add: Patents at acquisition ($108,000/90%) 120,000 Income from Sal ($40,000 1/2 year 90% interest) $ 18,000 Cash (+A) 2,500 Firm purchase commitment (-A) 9,901 exchange broker when spot rate is $.6550
Income from Singh $ 36,000 Forward Contract (-A) 2,500 Firm purchase commitment (+L) 2,500 Cash
Purchase price (traditional theory) $1,464,000 Noncontrolling interest under entity theory 653,000
Consolidated net income $236,000 2. Settlement date June 1, 2012 Rice Inventory (+A) 500,000 Contract receivable 653,000
Parent company theory Imputed value of Sal at July 1, 2012 $1,000,000 Cash (+A) 600,000 Firm purchase commitment (-L) 2,500
Singh separate income $ 50,000 To record receipt of U.S. dollars from exchange
Combined separate incomes of Pal and Sal $800,000 Add: Income for 1/2 year 20,000 Sales (+R) 600,000 Cash (-A) 502,500 broker in settlement of account.
Depreciation of excess (10 years) $ (5,000) Cost of Goods Sold (+E)500,000 Cash (+A) 2,500
Less: Pal’s share of unrealized profits from upstream 1,020,000
Singh's income $ 45,000 Other Comprehensive Forward Contract (-A) 2,500
inventory sales ($30,000 80%) (24,000) Noncontrolling percentage 10%
Noncontrolling interest share (20%) $ 9,000 Income (-OCI,-SE) 2,500 2. Cash (+A) 600,000
Less: Noncontrolling interest share ($300,000 20%) (60,000) Noncontrolling interest $ 102,000
Consolidated net income $716,000 Alternatively, $100,000 noncontrolling interest at July 1, Rice Inventory (-A) 502,500 Sales (+R,+SE) 600,000
Parent company theory Cost of Goods Sold (+E,-SE) 500,000
Entity theory plus $2,000 share of reported income = $102,000
Ping's separate income $200,000 Rice Inventory (-A) 500,000
Parent company theory Income from Singh $ 36,000 1.November 1, 2011 Memorandum entry only September 1, 2014
Combined separate incomes $800,000 Consolidated net income $236,000
Less: Unrealized profits from upstream sales (30,000) Cost to investment (80%) $ 280,000 2.December 31, 2011 Accounts receivable (fc) (+A) 15,400
Total consolidated income $770,000 Underlying equity [80% x (common stock Forward Contract (+A) 49,751 Sales (+R, +SE) 15,400
+ retained earnings)] $ (200,000) Noncontrolling interest share (20% x $50,000 Unrealized Gain on Forward Contract To record sales to Dimple AG; (€20,000 ´ $0.77 spot rate)
Excess of book value $80,000 Singh's separate income) $ 10,000 (+Ga, +SE) 49,751 Contract receivable (+A) 15,000
Income allocated to controlling stockholders ($50,000
+ Allocate excess to Preliminary computations (100,000x.50)/1.005 Contract payable (fc) (+L) 15,000
$716,000 Accounts receivables (80% x $50,000) $ 40,000 Retained earnings – beginning $ 500,000 To record forward contract to deliver €20,000 in 30 days.
[$270,000 80%])
Inventory (80% x $20,000) $ 16,000 Add: Net income for the year $ 300,000 Unrealized Loss on Firm Receivable: €20,000 ´ $0.75 forward rate.
Plant assets (80% x $20,000) $ 16,000 Less: Dividend $ (50,000) Sales Commitment (+Lo,-SE) 49,751 October 1, 2014
Income allocated to noncontrolling stockholders
($300,000 - $30,000) 20% $ 54,000 Retained earnings - ending $ 750,000 Firm Sales Commitment (+L) 49,751 Cash (fc) (+A) 15,800
Goodwill $ 8,000 Common stock $8,000,000 3.January 31, 2012 Exchange gain (+Ga, +SE) 400
Excess of book value $ 80,000 Total stockholders' equity Unrealized Loss on Accounts receivable (fc) (-A) 15,400
Goodwill Less: Retained earnings $(50,000) Forward Contract (+Lo,-SE) 149,751
on December 31, 2014 $8,750,000 To record collection of receivable from Dimple AG.
Parent company theory Push down capital $ 30,000 Forward Contract (+L) 100,000 Cash: €20,000 ´ $0.79.
Cost of investment in Sad $ 500,000 Forward Contract (-A) 49,751
40% 25% 20% 15% Exchange gain: [€20,000 ´ ($0.79 - $0.77)]
Fair value acquired ($400,000 80%) 320,000 Entity theory ($6-$5=1.00x100,000)
Corporate net income $ 300,000 Contract payable (fc) (-L) 15,000
Goodwill $ 180,000 Implied fair value of cost Firm Sales Commitment (+A)100,000 Exchange loss (+Lo, -SE) 800
Entity theory to investment ($280,000 / 80%) $ 350,000 Firm Sales Commitment (-L) 49,751
Stockholders' equity $8,750,000 Cash (fc) (+A) 15,800
Implied value based on purchase price ($500,000/80%) $ 625,000 Book value of equity $( 250,000) Unrealized Gain on Firm To record delivery of €20,000 from Dimple AG
Fair value of Sad’s net assets 400,000 Excess of book value $ 100,000 Income from Mill $120,000 $ 75,000 $ 60,000 $45,000 Sales Commitment (+G,+SE) 149,751 to foreign exchange broker in settlement of liability
Goodwill $ 225,000 Allocate excess to Forward Contract (-L) 100,000
Investment on and recognize exchange loss [€20,000 ´ ($0.79 - $0.75)]
Accounts receivable $ 50,000 December 31, 2014 $ 3,500,000 $2,187,500 $ 1,750,000 $1,312,500 Cash 100,000 Cash (+A) 15,000
Noncontrolling interest Inventory $ 20,000 Cash 600,000 Contract receivable (-A) 15,000
Parent company theory Plant asssets $ 20,000 Sales 600,000
1.October 1, 2011 Preliminary calculations To record receipt of cash from exchange broker.
Book value of Sad’s net assets $ 260,000 Sales 100,000
Forward contract(+A) 49,012 Value at spot rate $ 64,000
Noncontrolling interest percentage 20% Goodwill $ 10,000 Firm Sales Commitment (-A) 100,000
Gain on forward contract 49,012 Hedge contract ($ 62,500)
Noncontrolling interest $ 52,000 Excess of book value $100,000 100,000 x ($2.00 - $1.50))/(1.005)4 Discount $ 1,500
Entity theory Less: Retained earnings $(50,000) Inventory (+A) 50,000 1.Implicit rate of return (use formula) 1. Date Forward Contract Rate Forward Contract Difference x 2,000,000 Factor Present Value
Total valuation of Sad $ 625,000 Push down capital $ 50,000 Gain on inventory (+SE) 50,000 n = 90 days = 3 months Rate at This Date of Data Below
Noncontrolling interest percentage 20%
2.December 31, 2011 $64,000 (1 + i )n = $62,500 31-Dec 0.0095 0.0098 0.0003 600 1.01 594.06
Noncontrolling interest $ 125,000 Push down under parent company theory Loss on forward contract 98,763 3
$64,000 ( 1 + i ) = $62,500
Retained earnings 800,000 Forward contract(-A) 49,012 ( 1 + i )3 =0.976563
Total assets 2. Spot rate - January 30, 2015 $ 0.0120
Inventories 90,000 Forward contract(+L) 49,751 3√(1 + i )3 = 3√0.976563
Parent company theory 90-day forward rate - November 1, 2014 $ 0.0095
Land 450,000 (100,000 x ($2.00 - $2.50))/(1.005)= 49,751 1 + i=0.992126
Pod Sad Adjustment Total Difference $ 0.0025
Buildings — net 270,000 i = -0.00787
Current assets $ 20,000 $ 50,000 $ 40,000 80% $ 102,000 Goodwill 360,000 3.January 31, 2012 -0.7874% per month Merchandise price $ 2,000,000
Plant assets — net 480,000 250,000 110,000 80% 818,000 Equipment 180,000 Forward contract(-L) 49,751 2. Discount Balance Contract loss in January 30, 2015 $ 5,000
Goodwill 180,000 Other liabilities 90,000 Cash 30,000
$500,000 $300,000 $1,100,000 -0.79% $ 64,000
Push down equity 1,700,000 Gain on forward contract 19,751 30-Nov $ (504) $ 63,496
Push down under entity theory
30-Dec $ (500) $ 62,996
Entity theory Retained earnings 800,000
30-Jan $ (496) $ 62,500
Current assets $ 20,000 $ 50,000 $ 40,000 100% $ 110,000 Inventories 100,000
Total discount
Plant assets — net 480,000 250,000 110,000 100% 840,000 Land 500,000 amortization $(1,500)
Goodwill 225,000 Buildings — net 300,000
Total amortization needs
$500,000 $300,000 $1,175,000 Goodwill 400,000
adjustment on
Equipment — net 200,000
December 31, 2015 $1,003.90
Other liabilities 100,000
Push down equity 1,800,000