ULeth Fall 2013ACCT 4381 Midterm 2 November 2013 ExaminationConsolidated Goodwill at AcquisitionAcquirerParent70%Consideration14,000,000Number of Years52,0102,014Carrying Value OfSubsidiarys Identifiable Net Assets(Based On Acquisition Date Shareholders Equity)Common Stock10,000,000Retained Earnings8,000,00018,000,000Fair Value Changes:Amort YearsDecrease On Inventories(250,000)1Decrease On Plant(3,000,000)8Patent2,000,00010Increase On Liabilities750,000(500,000)9Fair Value Of Subsidiarys Identifiable Net Assets17,500,000

NCI Based On Identifiable AssetsInvestment Cost (Consideration Transferred)70.0%14,000,000Non-Controlling Interest 30.0%6,000,000Subtotal20,000,0000.0Fair Value OfSubsidiarys Identifiable Net Assets17,500,000Goodwill2,500,0005 marks

1. (5 marks) Investment Eliminationentry that would be required to eliminate the Parent Companys Investment In Subsidiary would be as follows:

Common Stock - No Par10,000,000Retained Earnings - Subsidiarys Opening8,000,000Patent2,000,000Goodwill2,500,000Liabilities (Non-current)750,000Investment InSubsidiary14,000,000Inventories250,000Plant and Equipment (Net) 3,000,000Non-Controlling Interest6,000,00023,250,00023,250,0000.02. (30 marks) Working Paper Journal entriesStep B - Amortization Of The Fair Value Change On Plant And Equipment8yearsPlant and Equipment (Net)51,875,000Amortization Expenses (2014)1375,000Retained Earnings - Subsidiarys Opening [(5)($375,000)]41,500,000

Step B - Amortization Of Patent The fair value decrease will be amortized as follows:10yearsAmortization Expenses (2014) 1200,000(22,222)Retained Earnings - Subsidiarys Opening [(5)($200,000)] 4800,0002,133,333 Patent [(6)($200,000)]51,000,0002,111,111

Step B - Amortization Of The Fair Value Change On The Liabilities The fair value increase on the long-term liabilities will be amortized as follows:9years Long-Term Liabilities 5416,667Other Expenses (2014) 183,333Retained Earnings - Subsidiarys Opening4333,333

Step B - Fair Value Inventories Realization The entry to record the realization of the fair value decrease in inventories is as follows:

Inventories250,000Retained Earnings - Subsidiarys Opening250,000

Step B amortization of goodwill impairment happened 2011 and 2014 is as follows:

Retained earnings 400,000Other expenses (2014)(100,000)Goodwill300,000

Step B - Intercompany Dividends The entry to eliminate the intercompany Dividends Declared is as follows:

Total Revenues700,000Non-Controlling Interest (Balance Sheet)300,000Dividends Declared1,000,000

Step B - Intercompany Merchandise Sales The entry to eliminate the intercompany merchandise sales is as follows:

Sales900,000Cost Of Goods Sold900,000

Step B - Unrealized Upstream Inventory Profits Two entries are required to eliminate the unrealized intercompany profits in both the opening inventories and the closing inventories The unrealized opening inventory profits equal $55,000 [(55%)($100,000)] while the unrealized inventory profits in the closing inventories equal $275,000 [(55%)(1/2)($1,000,000)]. The entries are as follows:Retained Earnings - Subsidiarys Opening55,000Cost of Goods Sold55,000

Cost of Goods Sold137,500Inventories137,500

Step B - Unrealized downstream Inventory Profits Two entries are required to eliminate the unrealized intercompany profits in both the opening inventories and the closing inventories. The unrealized opening inventory profits equal $0 [(30%)($0)] while the unrealized inventory profits in the closing inventories equal $45,000 [(30%)($150,000)]. The entries are as follows:

Retained Earnings - Subsidiarys Opening30,000Cost of Goods Sold30,000

Cost of Goods Sold45,000Inventories45,000

Step B - Elimination Of Patent Sale The upstream gain on the January 1, 2011 sale of the Patent is $1,000,000 ($1,000,000 - $0). This gain was recorded in 2011 and the required entry for 2014 is as follows:

Retained earnings2,000,0001,333,333Patent2,000,0001,111,111Patent888,889Retained earnings666,667Patent Amort222,222222,222

Step B - Intercompany Receivables and Payables The entry to eliminate the intercompany accounts:

Accounts Payable550,000Accounts receivable550,000

Step B - Intercompany Management fees The entry to eliminate the intercompany accounts:

Total revenues150,000Other expenses150,000

Step B - Elimination Of Equipment Sale The downstream gain on the January 1, 2011 sale of the Equipment is $15,000 ($95,000 - $30,000-75,000). This gain was recorded in 2014 and the required entry for 2014 is as follows:

Gain on sale (2014) 50,000Equipment (Non-current assets) 50,000Dep exp (Amort expenses) 10,000Accum Dep (Non-current assets) 10,000

4. Consolidated Income Statement (20 marks)The consolidated Income Statement for the Parent Company and its subsidiary, the Subsidiary Company, is as follows:

Parent Company and SubsidiaryConsolidated Income StatementFor The Year Ending December 31, 2014ParentSubJETotalTotal Revenues 15,000,0005,000,000(1,750,000)18,250,000Cost Of Goods Sold 8,000,0002,000,000(802,500)9,197,500Amortization 1,000,000400,000(407,222)992,778Other Expenses 2,000,000600,000(116,667)2,483,333Total Expenses11,000,0003,000,000(1,326,389)12,673,611

Consolidated Net Income Of The Enterprise4,000,0002,000,000(423,611)5,576,38910 marksNon-Controlling Interest (See Note)566,083Controlling Interest In Consolidated Net Income5,010,306

Note The Non-Controlling Interest would be calculated as follows:

Subsidiarys 2014 Net Income2,000,000Amortization Of Fair Value Change On Equipment375,000Amortization Of Fair Value Change On Liabilities(83,333)Amortization of Patent(200,000)Amortization of Patent(222,222)Upstream Profits In Opening Inventories55,000Upstream Profits In Closing Inventories(137,500)Goodwill current year100,000Adjusted Net Income1,886,944Non-Controlling Percent30%Non-Controlling Interest566,08310 marks

5. Opening Retained Earnings Subsidiary Companys January 1, 2014 (15 marks) is as follows:

Retained Earnings - Subsidiarys Opening16,000,000

Balance At Acquisition8,000,000Balance Since Acquisition8,000,000Adjustments For Fair Value Realizations: Inventories250,000 Amortization On Equipment [(5)($50,000)]1,500,000 Amortization On Liabilities [(5)($20,000)](333,333)Adjustments For Unrealized Upstream Profits Opening Inventories(55,000)closing inventories(30,000)Goodwill impairment(400,000)Patent(2,000,000)Patent666,667Amortization patent(800,000)(2,133,333)Adjusted Balance Since Acquisition6,798,333Non-Controlling Interest 30%2,039,500To Consolidated Retained Earnings - controling interest4,758,833

6. (10 marks) Non-Controlling InterestThe Non-Controlling Interest that would appear on the consolidated Balance Sheet as at December 31, 2011 of the Parent Company and its subsidiary:6,000,000NEarnings566,083Retained earnings(300,000)dividends2,039,500December 31, 2014 Non-Controlling Interest8,305,583

7. SFP 15 marksAdjustingParentSubDRCRTotalNCI AdjCA35,000,0006,000,000250,000982,50040,267,50040,267,50040,267,500Non Current70,500,00026,000,0004,773,88920,050,00081,223,88981,223,889Goodwill2,500,000300,0002,200,0002,200,00083,423,889total assets105,500,00032,000,0007,523,88921,332,500123,691,3890.0123,691,389123,691,389

CL8,000,0002,000,000550,0009,450,0009,450,0009,450,000Non Current15,000,0003,000,000750,000416,66717,666,66717,666,66717,666,667NCI300,0006,000,0005,700,0002,605,5838,305,5838,305,583Com20,000,00010,000,00010,000,00020,000,00020,000,00020,000,000RE Parent60,000,00060,000,0004,758,83364,758,83368,269,139RE Sub16,000,00011,618,3332,416,6676,798,333(6,798,333)0.0revenue15,000,0005,000,0001,750,00018,250,000(566,083)5,010,3060.0cogs(8,000,000)(2,000,000)182,500985,000(9,197,500)amort(1,000,000)(400,000)200,000607,222(992,778)other(2,000,000)(600,000)33,333150,000(2,483,333)divid(1,500,000)(1,000,000)1,000,000(1,500,000)(1,500,000)105,500,00032,000,00025,384,16711,575,556123,691,389(0)123,691,389123,691,389

0.00.032,908,05632,908,0560.00.00.00.0

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