Jasmin Marrero

Fall 2023
Chapter 4 Assignment

1. Petron, a U.S. company, owns the majority of the voting stock of Sego. Petron consolidates Sego
unless
a. Sego is bankrupt

2. A U.S. company pays $50 million cash to acquire 85% of the stock of another company. The fair
value of the noncontrolling interest at the date of acquisition is $5 million, and the book value of
the acquired company is $14 million. The subsidiary’s net assets are reported at amounts
approximating fair value at the date of acquisition, except that its plant assets are overvalued by
$10 million and it has previously unrecorded identifiable intangible assets with a fair value of $25
million. What is the total reported goodwill on this acquisition?
Consideration + FVNCI -FVNIA
$50mill +$5mill-($14 mill -$10 mill+$25mill)= $26mill
c. $26 million

3. Following U.S. GAAP, a 20% noncontrolling interest in a subsidiary is reported on the

consolidated balance sheet at the date of acquisition at what amount?
d. The fair value of the noncontrolling interest

4. Penny Corporation, a U.S. company, acquired 87% of Sawyer Company’s common stock for
$216,000 in cash on January 1, 2023. At that date, Sawyer had $145,000 of reported net assets
(book value). These reported net assets were fairly stated, except land was overvalued by
$13,000, unrecorded licensing agreements were valued at $26,000 and unrecorded favorable
location was valued at $12,000. The estimated fair value of the noncontrolling interest is $30,000
at the acquisition date. Calculate total goodwill and its allocation to the controlling and
noncontrolling interests. You must show your work to receive credit.

Contribution +FVNCI-FVNIA
$216,000+$30,000-(145,000-13,000+26,000)= Goodwill
$246,000- $158,000= Goodwill

Goodwill to controlling interest

Acquisition cost $216,000
Less controlling interest in fair value of Sawyer's net identifiable assets:
87% x$158,000 (137,460)
Controlling interest's share of Goodwill $78,540

Goodwill to noncontrolling interest

Total Goodwill $88,000
Less goodwill to controlling interest (78,540)
Noncontrolling interest’s share of goodwill $9,460

5. Ping Corporation paid $371,000 cash for 70% of the outstanding common stock of Spring
Company on January 1, 2023. There was no control premium and the fair value of the
noncontrolling interest was $159,000 on January 1, 2023. Differences between book value and
 fair value of the net identifiable assets of Spring Company on January 1, 2021, were limited to the
following:
Book value Fair value
Inventories $ 20,000 $ 31,000
Building (net) 180,000 175,000

Required:
(i) Prepare the working paper elimination entries E and R (in journal entry format) for Ping
Corporation and subsidiary on January 1, 2023.

Considerations + FVNCI- FVNIA= Goodwill

$371,000 +$159,000- (30,000+31,000+175,000-110,000) = $404,000 Goodwill
E Common Stock 23,000
add. Paid-in Capital 37,000
Retained Earnings 60,000
Investment in Spring 84,000
Non controlling interest 36,000

R Inventories 11,000
Goodwill 404,000
Building 5,000
Investment in Spring 287,000
Non controlling interest 123,000
E: (23,000+37,000+60,000)*70%= 84,000 investment in Spring
R: (404,000+11,000-5,000)*70%= 287,000 investment in spring

(ii) Complete the following working paper:

Working paper for consolidated balance sheet on date of business combination, January 1, 2023
Ping Spring Adjustments & Eliminations Consolidated
Dr (Cr) Dr (Cr) Debits Credits Dr (Cr)
Cash 50,000 30,000 $80,000
Inventories 133,000 20,000 R 11,000 $164,000
Investment in Spring 371,000 E 84,000
R 287,000
Building (net) 430,000 180,000 R 5,000 $605,000
Goodwill R 404,000 404,000
Accounts payable (300,000) (110,000) (410,000)
Common stock (130,000) (23,000) E 23,000 (130,000)
Add. paid-in capital (374,000) (37,000) E 37,000 (374,000)
Retained earnings (180,000) (60,000) E 60,000 (180,000)
NCI E 36,000 (159,000)
R 123,000
Total 0 0 535,000 535,000 0