Solution manual advanced accounting 2nd by hamlen CH05

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CHAPTER 5
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1.

b
Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value
Plant and equipment revaluation
Identifiable intangibles
Fair value of identifiable net assets
Goodwill

$13,000,000
(25,000,000)
40,000,000
28,000,000
$ 70,000,000

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
$ 70,000,000
Pomegranate’s goodwill: $91,700,000 – 90%(28,000,000)
66,500,000
Goodwill to noncontrolling interest
$ 3,500,000

Goodwill is allocated 95% to the controlling interest and 5% to the noncontrolling
interest.
(R)
Identifiable intangibles
Goodwill

40,000,000
70,000,000

Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in
Starfruit (2)
(1) 90% x (40,000,000 - 25,000,000) + 66,500,000
(2) 10% x (40,000,000 - 25,000,000) + 3,500,000

Solutions Manual, Chapter 5

25,000,000
80,000,000
5,000,000

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2.

c
(R)
Identifiable intangibles
Goodwill

24,000,000
68,000,000

Plant and equipment
Investment in Starfruit (1)
Noncontrolling interest in
Starfruit (2)
(1) 90% x (24,000,000 - 20,000,000) + 95% x (70,000,000 – 2,000,000)
(2) 10% x (24,000,000 - 20,000,000) + 5% x (70,000,000 – 2,000,000)
3.

3,800,000

b

Starfruit net income
Revaluation write-offs:
Plant and equipment depreciation
Identifiable intangibles amortization
Goodwill impairment loss

4.

20,000,000
68,200,000

Equity in net income
$ 6,750,000

NCI in net income
$750,000

2,250,000
(7,200,000)
(475,000)
$ 1,325,000

250,000
(800,000)
(25,000)
$ 175,000

c
10% x $28,000,000.

5.

c
Same calculation as in question 3, except the noncontrolling interest does not share in the
goodwill impairment loss.

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6.

d
(E)
Stockholders’ equity

13,000,000
Investment in Starfruit
Noncontrolling interest in
Starfruit

(R)
Identifiable intangibles

(1)

(2)

11,700,000
1,300,000

40,000,000

Plant and equipment
25,000,000
Investment in Starfruit (1)

14,300,000
Noncontrolling interest in
Starfruit (2)
700,000
Investment in Starfruit balance on Pomegranate’s books is $26,000,000 (=
20,000,000 cost + 6,000,000 gain on acquisition). Elimination of the investment
in (R) is the remainder of the investment balance, after elimination E.
The credit to noncontrolling interest in (R) brings the noncontrolling interest to
fair value, after elimination (E).

7.

a
There is no goodwill when the acquisition is a bargain purchase.

8.

d

9.

b

10.

a

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EXERCISES
E5.1

Combination and Consolidation, Date of Acquisition (see related E3.1)

a.

Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Sylvan
Goodwill

$ 43,200,000
4,250,000
47,450,000
17,000,000
$ 30,450,000

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Princecraft’s goodwill: $43,200,000 – 90%(17,000,000)
Goodwill to noncontrolling interest

$ 30,450,000
27,900,000
$ 2,550,000

b.
Consolidation Working Paper (in thousands)
Accounts Taken From
Books

Total other assets
Investment in Sylvan

Princecraft
$ 150,000
43,200

Sylvan
$ 25,000

______
$ 193,200

______
$ 25,000

Total liabilities
Common stock
Additional paid-in capital
Retained earnings
Noncontrolling interest

$

$

Total liabilities and equity

______
$ 193,200

Dr

Cr
15,300 (E)
27,900 (R)

Goodwill
Total assets

30,000
15,360
87,840
60,000

Eliminations

8,000
5,000
10,000
2,000

______
$ 25,000

(R) 30,450

Consolidated
Balances
$ 175,000
-_30,450
$ 205,450

(E) 5,000
(E) 10,000
(E) 2,000

$ 38,000
15,360
87,840
60,000

1,700 (E)
______
2,550 (R)
$ 47,450 $47,450

__4,250
$ 205,450

Note: Princecraft’s balance sheet above reflects the following acquisition entry (in thousands):

Investment in Sylvan

43,200
Common stock
Additional paid-in capital

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c.
Consolidated Balance Sheet, January 1, 2013 (in thousands)
Assets
Total assets
Goodwill
Total assets
Liabilities and stockholders’ equity
Total liabilities
Stockholders’ equity
Princecraft’s stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings

Total Princecraft’s stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity

E5.2

Date of Acquisition Consolidation with In-Process R&D

a.

Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Saylor
Fair value – book value:
Land
IPR&D
Goodwill

$

38,000

15,360
87,840
60,000
163,200
4,250

167,450
$ 205,450

$ 10,000,000
2,000,000
12,000,000
$ 6,000,000
500,000
1,000,000
$

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Pennant’s goodwill: $10,000,000 – 80%(7,500,000)
Goodwill to noncontrolling interest

Solutions Manual, Chapter 5

$ 175,000
30,450
$ 205,450

$
$

7,500,000
4,500,000

4,500,000
4,000,000

500,000

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b.

Consolidated Financial Statement Working Paper
(E)
Stockholders’
equity – Saylor

6,000,000
Investment in Saylor (80%)
Noncontrolling interest in Saylor (20%)

(R)
Land
IPR&D
Goodwill

4,800,000
1,200,000

500,000
1,000,000
4,500,000

Investment in Saylor (1)
Noncontrolling interest in Saylor (2)
(1) 80% x (500,000 + 1,000,000) + 4,000,000
(2) 20% x (500,000 + 1,000,000) + 500,000

E5.3

5,200,000
800,000

Date of Acquisition Consolidation, Bargain Purchase

a.
Acquisition cost
Fair value of noncontrolling interest
Total
Book value of Sparrow
Fair value – book value:
Land
Other plant assets
Investments
Long-term debt
Fair value of identifiable net assets
Gain on acquisition

$ 22,000,000
4,000,000
26,000,000
$ 25,000,000

(800,000)
2,000,000
1,500,000
(700,000)
27,000,000
$ (1,000,000)

Peregrine’s acquisition entry:
Investment in Sparrow
Merger expenses

23,000,000
3,000,000
Cash
Gain on acquisition

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25,000,000
1,000,000

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b.

Consolidated Financial Statement Working Paper

(E)
Stockholders’ equity –
Sparrow

25,000,000
Investment in Sparrow (80%)
Noncontrolling interest in
Sparrow (20%)

(R)
Other plant assets, net
Investments
Noncontrolling interest in
Sparrow (1)

20,000,000
5,000,000

2,000,000
1,500,000
1,000,000
Land
Long-term debt
Investment in Sparrow (2)

800,000
700,000
3,000,000

(1) $5,000,000 – 4,000,000

(2) $23,000,000 – 20,000,000
E5.4

Consolidated Balance Sheet, Date of Acquisition: U.S. GAAP and IFRS

a.

Calculation of goodwill:
Acquisition cost [($3,000,000 + (200,000 x $80))
Fair value of noncontrolling interest
Total fair value
Book value of Powerline
Fair value – book value:
Current assets
Plant and equipment
Brand names
Goodwill

$ 19,000,000
1,800,000
20,800,000
$ 4,500,000
500,000
6,000,000
2,000,000

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Microsoft’s goodwill: $19,000,000 – 90%(13,000,000)
Goodwill to noncontrolling interest

Solutions Manual, Chapter 5

13,000,000
$ 7,800,000

$
$

7,800,000
7,300,000
500,000

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b.
Consolidation Working Paper (in thousands)
Accounts Taken From
Books

Current assets
Plant and equipment, net
Investment in Powerline
Brand names
Goodwill
Total assets

Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Noncontrolling interest

Microsoft Powerline
$
7,000 $ 2,000
35,000
7,000
19,000

$
$

Total liabilities and equity

______
61,000
5,000
20,000
5,000
20,000
11,000

______
$ 61,000

$
$

$

______
9,000
1,500
3,000
100
1,400
3,000
______
9,000

Eliminations
Dr

Consolidated
Balances
$ 9,500
48,000

Cr

(R) 500
(R) 6,000
4,050 (E)
14,950 (R)

-2,000
__7,800
$ 67,300

(R) 2,000
(R) 7,800

$

6,500
23,000
5,000
20,000
11,000

(E) 100
(E) 1,400
(E) 3,000
450 (E)
______
1,350 (R)
$ 20,800 $ 20,800

__1,800
$ 67,300

Note 1: Microsoft’s balance sheet above reflects the following acquisition entry (in thousands):
Investment in Powerline

19,000

Cash
Common stock
Additional paid-in capital

Note 2:

3,000
2,000
14,000

The $14,950,000 credit to investment in entry (R) = 90% (500,000 + 6,000,000 +
2,000,000) + 7,300,000 (goodwill).
The $1,350,000 credit to noncontrolling interest in entry (R) = 10% (500,000 +
6,000,000 + 2,000,000) + 500,000 (goodwill).

c.

Calculation of goodwill:
Acquisition cost
90% x fair value of identifiable net assets
Goodwill

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90% x $13,000,000

$ 19,000,000
11,700,000
$ 7,300,000

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Consolidation Working Paper (in thousands)
Accounts Taken From
Books

Current assets
Plant and equipment, net
Investment in Powerline
Brand names
Goodwill
Total assets

Microsoft Powerline
$
7,000 $ 2,000
35,000
7,000
19,000

$

Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital

Retained earnings
Noncontrolling interest

$

Total liabilities and equity

$

______
61,000
5,000
20,000
5,000
20,000
11,000
_____
61,000

$
$

______
9,000
1,500
3,000
100
1,400
3,000

_____
$ 9,000

Eliminations
Dr

Cr

(R) 500
(R) 6,000
4,050 (E)
14,950 (R)
(R) 2,000
(R) 7,300

Consolidated
Balances
$ 9,500
48,000
-2,000
__7,300
$ 66,800
$

(E) 100
(E) 1,400
(E) 3,000
450 (E)
______
__850 (R)

$ 20,300 $ 20,300

6,500
23,000
5,000
20,000
11,000

__1,300
$ 66,800

Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.

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E5.5

Consolidation Eliminating Entries, Date of Acquisition: U.S. GAAP and IFRS

(amounts in thousands)
a.

Plummer’s acquisition entry:

Investment in Softek
Merger expenses

25,000
500
Cash
Common stock, par value
Additional paid-in capital

500
4,000
21,000

Consolidation eliminating entries:
(E)
Common stock
Additional paid-in capital
Retained earnings

200
8,000
5,000
Accumulated OCI
Treasury stock
Investment in Softek
Noncontrolling interest in Softek

800
400
10,800

1,200

(R)
Trademarks
Customer lists
Goodwill (1)

1,500
1,000
16,100

Plant assets, net
3,000
Long-term debt
100
Investment in Softek (2)
14,200
Noncontrolling interest in Softek
(3)
1,300
(1) ($25,000 + $2,500) – ($12,000 – $3,000 + $1,500 + $1,000 – $100) = $27,500 –
$11,400
(2) 90% x ($1,500 + $1,000 – $3,000 – $100) + ($25,000 – 90% x $11,400)
(3) 10% x ($1,500 + $1,000 – $3,000 – $100) + [$16,100 – ($25,000 – 90% x $11,400)]

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b.

Consolidation eliminating entries:
(E)
Common stock
Additional paid-in capital
Retained earnings

200
8,000
5,000
Accumulated OCI
Treasury stock
Investment in Softek
Noncontrolling interest in Softek

(R)
Trademarks
Customer lists
Goodwill (4)
Noncontrolling interest in
Softek (5)

800
400
10,800
1,200

1,500
1,000
14,740
60
Plant assets, net
Long-term debt
Investment in Softek

3,000
100
14,200

(4) $25,000 – (90% x $11,400)
(5) 10% x ($1,500 + $1,000 – $3,000 – $100)
Note: The IFRS alternative valuation method attributes no goodwill to the noncontrolling
interest.

E5.6

Consolidation at End of First Year (see related E4.3)

a.

Calculation of goodwill is as follows:
Acquisition cost ($10,000,000 + $300,000)
Fair value of noncontrolling interest
Total
Book value of Saddlestone
Identifiable intangibles

Goodwill

$ 10,300,000
6,500,000
16,800,000
$ 7,200,000
2,000,000

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Peak’s goodwill: $10,300,000 – 60%($9,200,000)
Goodwill to noncontrolling interest

Solutions Manual, Chapter 5

9,200,000
$ 7,600,000

$ 7,600,000
4,780,000
$ 2,820,000

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b.

2013 equity in net income and noncontrolling interest in net income:
Saddlestone’s reported net income
Revaluation writeoff:
Identifiable intangibles $2,000,000/5

c.

Total
$ 3,000,000
(400,000)
$ 2,600,000

Consolidation working paper eliminating entries for 2013:
(C)
Equity in net income of S
Dividends – Saddlestone
Investment in Saddlestone
(E)
Stockholders’ equity—
Saddlestone, 1/1

Equity in NI
$ 1,800,000

Noncontrolling
interest in NI
$ 1,200,000

(240,000)
$ 1,560,000

1,560,000
600,000
960,000

7,200,000
Investment in Saddlestone
Noncontrolling interest in
Saddlestone

(R)
Identifiable intangibles
Goodwill

4,320,000
2,880,000

2,000,000
7,600,000

Investment in Saddlestone
(1)
Noncontrolling interest in
Saddlestone (2)
(1) 60% x $2,000,000 + $4,780,000
(2) 40% x $2,000,000 + $2,820,000
(O)
Amortization expense

5,980,000

3,620,000

400,000
Identifiable intangibles

(N)
Noncontrolling interest in
income of Saddlestone

400,000

1,040,000
Dividends – Saddlestone
Noncontrolling interest in
Saddlestone

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(160,000)
$ 1,040,000

400,000
640,000

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E5.7Consolidation Two Years after Acquisition
(all numbers in thousands)
a.

Calculation of 2014 equity in net income and noncontrolling interest in net income:
Noncontrolling
Total
Equity in NI interest in NI
Silver Nugget’s reported NI for 2014
($100,000 – $80,000 – $14,000 =
$6,000)
$ 6,000
$
4,800
$ 1,200
Revaluation write-off:
Identifiable intangibles ($20,000/5)
(4,000)
(3,200)
(800)
$ 2,000
$
1,600
$
400

b.
Consolidation Working Paper, December 31, 2014
Trial Balances Taken
From Books

Dr (Cr)

Current assets
Plant and equipment, net
Intangibles
Investment in Silver Nugget

Goodwill
Current liabilities
Long-term debt
Common stock
Additional paid-in capital
Retained earnings, Jan. 1
Treasury stock
Noncontrolling interest

Dividends
Sales revenue
Equity in income of Silver
Nugget
Cost of goods sold
Operating expenses
Noncontrolling interest in NI

Solutions Manual, Chapter 5

Mirror
Resorts

Silver

Nugget

$

$

35,000
215,700
350,000
86,400

5,000
140,000
51,000
--

Eliminations
Consolidated

Dr

Cr

$
(R) 16,000

4,000 (O)
400 (C)
17,200 (E)
68,800 (R)

(R) 68,000
(50,000)
(600,000)
(500)
(6,000)
(25,000)
4,000

2,000

(20,000)
(150,000)
(100)
(5,500)
(17,500)
1,600

(E) 100
(E) 5,500
(E) 17,500
1,600 (E)
4,300 (E)
15,200 (R)
100 (N)
1,200 (C)
300 (N)

1,500

(800,000)

(100,000)

(1,600)
650,000
140,000
-$
-0-

-80,000
14,000
-$
-0-

Balances
40,000
355,700
413,000

-68,000
(70,000)
(750,000)
(500)
(6,000)
(25,000)
4,000
(19,600)

2,000

(900,000)

(C) 1,600
(O) 4,000
(N) 400
$ 113,100

$

_______
113,100

-730,000
158,000
400
$
-0-

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E5.8

Consolidation after Several Years

a.
Paramount’s acquisition cost

Fair value of noncontrolling interest
Total
Fair value of identifiable net assets:
1,500,000 – 100,000 – 200,000 – 400,000 + 200,000
Goodwill

$ 2,910,000
790,000
3,700,000
1,000,000
$ 2,700,000

Paramount’s share of goodwill = $2,910,000 – 75%($1,000,000) = $2,160,000 (80%)
Noncontrolling interest’s share of goodwill = $540,000 (20%)
b.

January 2009 balance
Change in Sun’s retained earnings, 2009-2014:
(1,800,000 – 800,000), divided 75:25
Write-off of Sun’s identifiable net asset
revaluations, 2009-2014: (100,000 + 200,000 +
240,000 – 200,000), divided 75:25
Goodwill impairment, 2009-2014:
(2,700,000 – 2,000,000), divided 80:20
Balance, end of 2014
c.

(E)
Stockholders’
equity-Sun

Investment
$ 2,910,000

Noncontrolling
interest
$
790,000

750,000

250,000

255,000

85,000

(560,000)
$ 3,355,000

$

(140,000)
985,000

2,400,000
Investment in Sun
Noncontrolling interest in Sun

(R)

Goodwill
Equipment, net (1)
Investment in Sun (2)
Noncontrolling interest in Sun (3)
(1) $400,000 – (6/10) x $400,000
(2) (80% x 2,000,000) – (75% x 160,000)
(3) (20% x 2,000,000) – (25% x 160,000)

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1,800,000
600,000

2,000,000
160,000
1,480,000
360,000

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E5.9

Consolidated Cash Flow from Operations
Consolidated net income ($15,000,000 + $5,000,000)
+ Consolidated depreciation expense
+ Amortization of previously unrecognized identifiable intangibles

- Amortization of premium created when revaluing LT debt
- 40% of undistributed equity method income (.4 x $1,700,000)
+ Decrease in noncash current operating assets
- Decrease in current operating liabilities
Cash flow from operating activities

$20,000,000
3,000,000
1,400,000
(80,000)
(680,000)
2,800,000
(2,100,000)
$24,340,000

Note: The $8,000,000 net income reported by the 75%-owned subsidiary is already
included in consolidated income, and is therefore not separately reported.

E5.10 Consolidated Cash Flow from Operations
Consolidated net income (1)
+ Consolidated depreciation expense (2)
+ Consolidated amortization expense (3)
+ Goodwill impairment loss
- Undistributed equity investment income (4)
Cash flow from operating activities
(1) Calculation of equity in net income:
P’s share of reported income 80% x $240,000
P’s share of revaluation write-offs:
Depreciation
Amortization

Goodwill impairment loss
Equity in net income
Calculation of consolidated net income:
Parent’s reported income
Subsidiary’s reported income
Less equity in net income of subsidiary
Less revaluation writeoffs:
Depreciation
Amortization
Goodwill impairment loss
Consolidated net income

$ 1,036,400
216,000
65,000
40,000
(25,000)
$ 1,332,400

$

192,000

$

(2,400)
(12,000)
(32,000)
145,600

$ 1,000,000
240,000
(145,600)
(3,000)
(15,000)
(40,000)
$ 1,036,400

(2) $175,000 + $38,000 + $3,000
(3) $50,000 + $15,000
(4) $60,000 - $35,000

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E5.11 Consolidation at Date of Acquisition, IFRS
(in millions)
a.

Calculation of goodwill:
Acquisition cost
Less 49% fair value of identifiable net assets
Goodwill

49% x (22.5)

€ 67
(11)
€ 78

Noncontrolling interests = 51% x €(22.5) = €(11.5)
b.

(E)
Investment in ASTAR
Noncontrolling interest

10
10.5
Stockholders’ equity-ASTAR

20.5

(R)
Noncurrent financial assets
Goodwill
Noncontrolling interests

2
78
1
Intangible assets
Investment in ASTAR

4

77

E5.12 Consolidation Worksheet, Date of Acquisition and One Year Later, IFRS
(in millions)
a.

Calculation of goodwill:
Acquisition cost
Fair value of identifiable net assets:
Book value
Revaluations:
Customer lists
Trade name
Assumed liabilities
Deferred tax assets, net
Total fair value of identifiable net assets
Vivendi’s share
Goodwill

€ 787
€ (118)
150
25
(484)
123
(304)
x 85%

(258)
€ 1,045

Noncontrolling interests = 15% x (304) = €(46)

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b.

(E)
Investment in TPS
Noncontrolling interest

100
18
Stockholders’ equity-TPS

(R)
Goodwill
Customer lists
Trade name
Deferred tax assets, net
Noncontrolling interest

118

1,045
150
25
123
28
Assumed liabilities
Investment in TPS

c.

484
887

Calculation of equity in net loss of TPS and noncontrolling interest in TPS income is as
follows:
Noncontrolling
Equity in NL
interest in NI
TPS’ reported income for 2007
€ 68.00
€12.00
Revaluation write-offs:
Customer lists (€150/5)
(25.50)
(4.50)
Goodwill impairment
(100.00)
-Trade name impairment
(4.25)
(0.75)

€ (61.75)
€ 6.75
(C)
Investment in TPS

61.75
Equity in net loss of TPS

(E)
Investment in TPS
Noncontrolling interest

61.75

100
18
Stockholders’ equity-TPS

(R)
Goodwill
Customer lists
Trade name
Deferred tax assets, net
Noncontrolling interest

1,045
150
25
123
28

Assumed liabilities
Investment in TPS

Solutions Manual, Chapter 5

118

484
887

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(O)
Amortization expense
Impairment losses

30
105
Customer lists
Goodwill
Trade name

30
100
5

(N)
Noncontrolling interest in NI

6.75
Noncontrolling interest

6.75

E5.13 Consolidation at Acquisition Date, IFRS
(in millions)
a.

Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value of Sotelma
Fair value of identifiable net assets:
Book value
Revaluations:
License
Customer bases
Deferred tax
Total fair value of identifiable net assets
Goodwill

€ 278
208
486
€

35
24
2
(3)
58
€ 428

Goodwill to controlling interests = €278 – (51% x 58) = €248
Goodwill to noncontrolling interests = €428 - €248 = €180
b.

Maroc Telecom paid a premium to purchase a controlling interest in Sotelma. Maroc’s
acquisition cost of €278 implies a full price of €278/.51 = €545, and a noncontrolling
interest value of €545 x 49% = €267. However, the fair value of the noncontrolling
interest is only €208.

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c.

(E)
Stockholders’ equity-Sotelma

35

Investment in Sotelma
Noncontrolling interest

(R)
License
Customer bases
Goodwill

24
2
428

Deferred tax
Investment in Sotelma
Noncontrolling interest
€260 = (51% x €23) + €248; €191 = (49% x €23) + €180.
d.

18
17

3
260
191

Noncontrolling interest = 49% x €58 = €28

Solutions Manual, Chapter 5

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PROBLEMS
P5.1 Consolidation Working Paper, Date of Acquisition
(all numbers in millions)
a.

Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Bagota
Fair value – book value:
Property, plant and equipment
Patents and trademarks
Customer-related intangibles
Long-term liabilities
Goodwill

$ 1,200
_375
1,575
$ 500
(200)
45
30
__25

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Hershey’s goodwill: $1,200 – 75%(400)
Goodwill to noncontrolling interest

_400
$ 1,175
$ 1,175
900
$ 275

b.
Consolidation Working Paper (in millions)
Accounts Taken From Books

Current assets
PP&E, net
Investment in Bagota
Patents and trademarks
Customer-related intangs
Goodwill
Total assets
Current liabilities
Long-term liabilities
Common stock, par value
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated OCI

Noncontrolling interest
Total liabilities and
equity

Hershey
$ 1,500
1,600
1,200

Bagota
$ 325
600
--

1,300
-_____
$ 5,600
$ 1,600
1,900
300
1,950
3,900
(4,000)
(50)

_____
$ 1,000
$ 100
400
10

200
300
-(10)

_____
$ 5,600

_____
$ 1,000

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75

Eliminations
Dr

Cr
200 (R)
375 (E)
825 (R)

(R)
45
(R)
30
(R) 1,175

(R)

25
(E)
10
(E) 200
(E) 300

_____
$ 1,785

10 (E)
125 (E)
250 (R)
$ 1,785

Consolidated
Balances
$ 1,825
2,000
-1,420
30
1,175
$ 6,450
$ 1,700
2,275
300
1,950
3,900
(4,000)
(50)
375

$ 6,450

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c.
Consolidated Balance Sheet, July 1, 2013
Assets
Current assets
Property, plant and equipment, net
Goodwill
Other intangibles
Total assets
Liabilities and stockholders’ equity
Current liabilities
Long-term liabilities
Total liabilities
Stockholders’ equity
Hershey’s stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total Hershey stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity

$

$
$

1,825
2,000
1,175
1,450
6,450
1,700
2,275
3,975

300
1,950
3,900
(4,000)
(50)
2,100
375
2,475
$ 6,450

P5.2

Consolidated Balance Sheet Working Paper, Date of Acquisition, Bargain Purchase
(see related P3.4)

a.

(amounts in millions)
Acquisition cost
Fair value of noncontrolling interest
Total
Book value of Saxon
Fair value – book value:
Inventory
Long-term marketable securities
Land
Buildings and equipment, net
Long-term debt
Fair value of identifiable net assets
Gain on acquisition
Paxon’s acquisition entry:
Investment in Saxon

$ 1,295
100
(50)
245
300
110
2,000
$ (800)
1,800

Cash
Gain on acquisition

Solutions Manual, Chapter 5

$ 1,000
200
$ 1,200

1,000
800
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b.
Consolidation Working Paper (in millions)
Accounts Taken From Books

Cash and receivables
Inventory
Marketable securities
Investment in Saxon

Paxon
$ 1,860
1,700
-1,800

Land

Buildings and equipment
Accumulated depreciation
Total assets
Current liabilities
Long-term debt
Common stock, par value
Additional paid-in capital
Retained earnings
Noncontrolling interest
Total liabilities and equity

650
3,400
(1,000)
$ 8,410
$ 1,500
2,000
500
1,200
3,210
-$ 8,410

Saxon
$ 720
900
300

175
600
-$ 2,695

$ 1,000
400
100
350
845
-$ 2,695

Eliminations
Dr

Cr

(R) 100
50 (R)
1,036 (E)
764 (R)
(R) 245
(R) 300

(R) 110
(E) 100
(E) 350
(E) 845
(R) 59
259 (E)
$ 2,109 $ 2,109

Consolidated
Balances
$ 2,580

2,700
250
-1,070
4,300
(1,000)
$ 9,900
$ 2,500
2,290
500
1,200
3,210
200
$ 9,900

Note: In journal entry form, the eliminating entries are:
(E)
Common stock, par value
Additional paid-in capital
Retained earnings

100
350
845
Investment in Saxon
Noncontrolling interest

(R)
Inventory
Land
Buildings and equipment

Long-term debt
Noncontrolling interest

1,036
259

100
245
300
110
59
Marketable securities
Investment in Saxon

50
764

The adjustment to noncontrolling interest brings its balance to fair value at the acquisition
date. The adjustment to the investment eliminates the remaining balance.

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c.
Consolidated Balance Sheet, December 31, 2012 (amounts in millions)

Assets
Cash and receivables
Inventory
Current assets
Long-term marketable securities
Land
Buildings and equipment, net of $1,000 accumulated depreciation
Total assets
Liabilities and stockholders’ equity
Current liabilities
Long-term debt
Total liabilities
Stockholders’ equity
Paxon stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings
Total Paxon stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity

P5.3

$

2,580
2,700
5,280
250

1,070
3,300
$ 9,900
$

500
1,200
3,210
4,910
200
5,110
$ 9,900

Consolidation Eliminating Entries, Date of Acquisition

(all amounts in thousands)
a.
Investment in Summer
Merger expenses

8,800
300
Cash
Earnings contingency liability

b.

2,500
2,290
4,790

8,300
800

Consolidation working paper eliminating entries:
(E)
Common stock
Retained earnings

500
3,000
Investment in Summer
Noncontrolling interest

Solutions Manual, Chapter 5

2,625
875

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(R)
In-process research and
development
Goodwill (1)
Noncurrent liabilities

1,500
9,300
100
Cash and receivables
Inventories
Plant assets, net
Intangibles
Lawsuit liability
Investment in Summer (2)
Noncontrolling interest (3)

(1) Calculation of goodwill:
Acquisition cost
Fair value of noncontrolling interest
Total fair value
Book value of Summer
Fair value – book value:
Cash and receivables
Inventories
Plant assets, net
Intangibles
Noncurrent liabilities
IPR&D
Lawsuit liability
Goodwill

200
500
1,000

1,000
400
6,175
1,625

$ 8,800
2,500
11,300
$ 3,500
(200)
(500)
(1,000)
(1,000)
100
1,500
(400)

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
Placer’s goodwill: $8,800 – 75%(2,000)
Goodwill to noncontrolling interest

2,000
$ 9,300

$ 9,300
7,300
$ 2,000

(2) 75% x ($100 + 1,500 – 200 – 500 – 1,000 – 1,000 – 400) + 7,300.

(3) 25% x ($100 + 1,500 – 200 – 500 – 1,000 – 1,000 – 400) + 2,000.

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P5.4

Consolidated Working Paper One Year after Acquisition, Bargain Purchase (see
related P4.4)

(all amounts in millions)
a.

Calculation of gain on acquisition:
Acquisition cost
Fair value of noncontrolling interest

$ 1,620
180
1,800

Book value ($100 + 350 + 845)
Excess of fair value over book value:
Inventory
Marketable securities

Land
Buildings and equipment
Long-term debt (discount)
Gain on acquisition

$ 1,295
100
(50)
245
300
110

2,000
$ (200)

b.
Total
Saxon’s reported net income for
2013 ($10,000 + 10 – 8,000 – 40 –
25 – 1,600 = $345)
Revaluation writeoffs:
Inventory
Marketable securities
Buildings and equipment ($300/20)
Long-term debt ($110/5)

Solutions Manual, Chapter 5

Equity in NI

Noncontrolling
interest in NI

$ 345

$ 310.5

$ 34.5

(100)
50
(15)
(22)
$ 258

(90)
45
(13.5)
(19.8)
$ 232.2

(10)
5
(1.5)
(2.2)
$ 25.8

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