father inc buys 80 percent of the outstanding common stock of sam corporation on jan 737959
Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2013, for $680,000 cash. At the acquisition date, Sam’s total fair value, including the noncontrolling interest, was assessed at $850,000 although Sam’s book value was only
$600,000. Also, several individual items on Sam’s financial records had fair values that differed from their book values as follows:
|
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
Book V alue $ 60,000 |
Fair V alue $ 225,000 |
|
Buildings and equipment |
||
|
(10 year remaining life) . . . . . . . . . . . . . . . . . . |
275,000 |
250,000 |
|
Copyright (20 year life) . . . . . . . . . . . . . . . . . . . |
100,000 |
200,000 |
|
Notes payable (due in 8 years). . . . . . . . . . . . . . |
(130,000) |
(120,000) |
For internal reporting purposes, Father, Inc., employs the equity method to account for this investment.
The following account balances are for the year ending December 31, 2013, for both com panies. Using the acquisition method, determine consolidated balances for this business com bination (through either individual computations or the use of a worksheet).
|
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
Father $(1,360,000) |
Sam $(540,000) |
|
|
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . |
700,000 |
385,000 |
|
|
Depreciation expense . . . . . . . . . . . . . . . . . . . . |
260,000 |
10,000 |
|
|
Amortization expense . . . . . . . . . . . . . . . . . . . . |
–0– |
5,000 |
|
|
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . |
44,000 |
5,000 |
|
|
Equity in income of Sam . . . . . . . . . . . . . . . . . . |
(105,000) |
–0– |
|
|
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ (461,000) |
$(135,000) |
|
Retained earnings, 1/1/13 . . . . . . . . . . . . . . . . . |
Father $(1,265,000) |
Sam $(440,000) |
|
|
Net income (above) . . . . . . . . . . . . . . . . . . . . . . |
(461,000) |
(135,000) |
|
|
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . |
260,000 |
65,000 |
|
|
Retained earnings, 12/31/13 . . . . . . . . . . . . . |
$(1,466,000) |
$(510,000) |
|
|
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ 965,000 |
$ 528,000 |
|
|
Investment in Sam . . . . . . . . . . . . . . . . . . . . . . |
733,000 |
–0– |
|
|
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
292,000 |
60,000 |
|
|
Buildings and equipment (net) . . . . . . . . . . . . . |
877,000 |
265,000 |
|
|
Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
–0– |
95,000 |
|
|
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ 2,867,000 |
$ 948,000 |
|
|
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . |
$ (191,000) |
$(148,000) |
|
|
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . |
(460,000) |
(130,000) |
|
|
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . |
(300,000) |
(100,000) |
|
|
Additional paid in capital . . . . . . . . . . . . . . . . . |
(450,000) |
(60,000) |
|
|
Retained earnings (above) . . . . . . . . . . . . . . . . . |
(1,466,000) |
(510,000) |
|
|
Total liabilities and equities . . . . . . . . . . . . . . |
$(2,867,000) |
$(948,000) |
Note: Credits are indicated by parentheses.