Solution manual advanced accounting 10e by fischer taylor CH09

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SPECIAL APPENDIX 1
UNDERSTANDING THE ISSUES
quired for monetary consideration. Thus, if 90%
of the shares were acquired from noncontrolling
group stockholders, but the total monetary consideration given to all former owners was 70%,
only 70% of the shares acquired from the former noncontrolling group could be recorded at
fair value. The balance of the shares would be
recorded at book value.

1. In order to record the shares acquired at fair
value, the individual stockholder’s residual interest must have increased and the new residual interest must be under 5%; or the stockholder’s residual interest decreased and (a) the
voting interest must be under 20%, (b) the individual supplied less than 20% of the company’s
total capital including debt, and (c) the new residual interest is less than 5%, and all the former owners whose ownership interest decreased must be under 20%.

3. Eighty-five percent of the shares would be recorded at fair value on the date of the acquisition. Generally, the remaining shares would be
recorded at their owner’s simple-equityadjusted cost. There are, however, exceptions
for owners with a less than 5% interest that
would allow the shares of the continuing stockholders to be recorded at current fair value.

Those shares not recorded at fair value are
recorded at the simple-equity-adjusted cost of
the owner.
2. When at least 80% of the consideration given is
not monetary, the shares recorded at fair value
are limited to the percentage of shares ac-

SA-1

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SA1—Exercises

EXERCISES
EXERCISE SA1-1
(1) 9,000 noncontrolling group shares at $40 market value* ...........................
1,000 controlling group shares at $25 equity-adjusted cost .......................
Total cost ....................................................................................................

$360,000
25,000
$385,000

*80% test met: 9,000 ÷ 10,000 = 90% acquired for cash.
(2) 8,000 noncontrolling group shares at $40 market value* ...........................
2,000 controlling group shares at $25 equity-adjusted cost .......................
Total cost ....................................................................................................

$320,000
50,000
$370,000

*80% test met: 8,000 ÷ 10,000 = 80% acquired for cash.
(3) 7,000 noncontrolling group shares at $40 market value* ...........................
2,000 noncontrolling group shares at $33 book value
($330,000 ÷ 10,000 shares) ................................................................
1,000 controlling group shares at $25 equity-adjusted cost .......................
Total cost ....................................................................................................
*80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash.

SA-2

$280,000
66,000
25,000
$371,000


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SA1—Exercises

EXERCISE SA1-2
Calculation of cost:
7,000 noncontrolling group shares at $40 market value* ...........................
2,000 noncontrolling group shares at $35 book value
($350,000 ÷ 10,000 shares) ................................................................
1,000 controlling group shares at $38 equity-adjusted cost .......................
Total cost ....................................................................................................

$280,000
70,000
38,000
$388,000

*80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash.
Determination and Distribution of Excess Schedule
80% Investment
Price paid for investment ($280,000 + $38,000) ................................................

Less interest acquired:
Equity ($350,000 × 80%) .............................................................................

$318,000

$
Property, plant, and equipment ($30,000 × 80%) ..............................................
Goodwill .............................................................................................................

$

280,000
38,000
24,000
14,000

Hercules Corporation
Balance Sheet
January 1, 20X1
Assets
Cash ................................................
Inventory..........................................
Property and plant ...........................
Goodwill...........................................
Total assets .....................................

Liabilities and Stockholders’ Equity
$

50,000 Long-term debt ..........................

100,000 Common stock (6,000
shares × $10)..........................
224,000 Paid-in capital in excess of par
14,000 [(1,000 × $28) + (2,000 ×
$25) + (3,000 × $30)] ..............
$388,000
Total liabilities and equity ..........

SA-3

$160,000
60,000

168,000
$388,000


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SA1—Problem

PROBLEM
PROBLEM SA1-1
(1) Calculation of cost:
7,000 noncontrolling group shares at $50 fair value* .............................
2,000 noncontrolling group shares at $30.50 book value
($305,000 ÷ 10,000) ..........................................................................
1,000 controlling group shares at $45 equity-adjusted cost ...................
Total cost................................................................................................

$350,000
61,000
45,000
$456,000

*80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash. Only those shares acquired with
monetary consideration may be recorded at fair value.
Determination and Distribution of Excess Schedule
80% Investment
Price paid ($350,000 + $45,000) ................................................................
Equity ($305,000 × 80%) ............................................................................
Excess of cost over book value (debit balance) .........................................
Inventory ($20,000 × 80%) .........................................................................
Equipment ($25,000 × 80%) .......................................................................
Building ($80,000 × 80%) ...........................................................................
Goodwill ......................................................................................................

$

$395,000
244,000
$151,000
(16,000)
(20,000)
(64,000)
51,000

Entries:
Cash .........................................................................................
Common Stock ($10 par)....................................................

Paid-In Capital in Excess of Par .........................................
To record formation of Newtone Corporation.

100,000

Cash .........................................................................................
Bonds Payable....................................................................
To record borrowing for the buyout.

250,000

SA-4

40,000
60,000

250,000


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SA1—Problem

Problem SA1-1, Continued
Cash .........................................................................................
Inventory ($130,000 + $16,000 + $2,000) ................................
Accounts Receivable ................................................................
Equipment ($75,000 + $20,000) ...............................................
Building ($120,000 + $64,000) .................................................
Land ..........................................................................................

Goodwill ....................................................................................
Bonds Payable....................................................................
Common Stock (6,000 shares × $10 par) ...........................
Paid-In Capital in Excess of Par
[($45,000 + $61,000) – $60,000 par] ...........................
Cash ...................................................................................
To record the acquisition of Oldtime.

60,000
146,000
40,000
95,000
184,000
30,000
51,000
150,000
60,000
46,000
350,000

(2) Calculation of cost:
9,000 noncontrolling group shares at $50 fair value
(includes 1,000 shares for 2,000 shares traded)* ............................
1,000 controlling group shares at $45 equity-adjusted cost ...................
Total cost................................................................................................

$450,000
45,000
$495,000

*80% test met: 8,000 ÷ 10,000 = 80% acquired for cash. All noncontrolling shares may be
recorded at fair value.
Determination and Distribution of Excess Schedule
100% Investment
Price paid ($450,000 + $45,000) ................................................................
Equity ($305,000) .......................................................................................
Excess of cost over book value (debit balance) .........................................
Inventory ($20,000) ....................................................................................
Equipment ($25,000) ..................................................................................
Building ($80,000) ......................................................................................
Goodwill ......................................................................................................

SA-5

$

$495,000
(305,000)
$190,000
(20,000)
(25,000)
(80,000)
65,000


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SA1—Problem

Problem SA1-1, Concluded

Entries:
Cash .........................................................................................
Common Stock ($10 par)....................................................
Paid-In Capital in Excess of Par .........................................
To record formation of Newtone Corporation.

100,000

Cash .........................................................................................
Bonds Payable....................................................................
To record borrowing for the buyout.

300,000

Cash .........................................................................................
Inventory ($130,000 + $20,000) ...............................................
Accounts Receivable ................................................................
Equipment ($75,000 + $25,000) ...............................................
Building ($120,000 + $80,000) .................................................
Land ..........................................................................................
Goodwill ....................................................................................
Bonds Payable....................................................................
Common Stock (5,000 shares × $10 par) ...........................
Paid-In Capital in Excess of Par
[($50,000 + $45,000) – $50,000 par] ............................
Cash ...................................................................................
To record the acquisition of Oldtime.

60,000
150,000

40,000
100,000
200,000
30,000
65,000

SA-6

40,000
60,000

300,000

150,000
50,000
45,000
400,000