Solution manual fundamentals of advanced accounting 9e by fischertaylor appendix

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SPECIAL APPENDIX 1
UNDERSTANDING THE ISSUES
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%.

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.
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-

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.

527

$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
70% Investment
Price paid for investment .................................................................................
Less interest acquired:
Equity ($350,000 × 70%)............................................................................

$280,000

$
Property, plant, and equipment ($30,000 × 70%) .............................................
Goodwill ...........................................................................................................

$

245,000
35,000
21,000
14,000

Determination and Distribution of Excess Schedule
10% Investment
Price paid for investment .................................................................................
Less interest acquired:
Equity ($350,000 × 10%)............................................................................

$38,000

$
Property, plant, and equipment ($30,000 × 10%) .............................................
Goodwill ...........................................................................................................

$

35,000
3,000
3,000
0

Hercules Corporation
Balance Sheet
January 1, 20X1
Liabilities and Stockholders’ Equity

Assets
Cash ..............................................
Inventory ........................................
Property and plant ..........................
Goodwill .........................................
Total assets ....................................

$

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 ..........

528

$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
70% Investment
Price paid .................................................................................................
Equity ($305,000 × 70%) ..........................................................................
Excess of cost over book value (debit balance) ........................................
Inventory ($20,000 × 70%) .......................................................................
Equipment ($25,000 × 70%) .....................................................................
Building ($80,000 × 70%) .........................................................................
Goodwill ...................................................................................................

$

$350,000

213,500
$136,500
(14,000)
(17,500)
(56,000)
49,000

Determination and Distribution of Excess Schedule
10% Investment
Price paid .................................................................................................
Equity ($305,000 × 10%) ..........................................................................
Excess of cost over book (debit balance) .................................................
Inventory ($20,000 × 10%) .......................................................................
Equipment ($25,000 × 10%) .....................................................................
Building ($80,000 × 10%) .........................................................................
Goodwill ...................................................................................................

$

$45,000
30,500
$14,500
(2,000)
(2,500)
(8,000)
2,000

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

529

40,000
60,000

250,000


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SA1—Problem

Problem SA1-1, Continued
Cash .......................................................................................
Inventory ($130,000 + $14,000 + $2,000) ...............................
Accounts Receivable ..............................................................
Equipment ($75,000 + $17,500 + $2,500) ...............................
Building ($120,000 + $56,000 + $8,000) .................................
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
90% Investment
Price paid .................................................................................................
Equity ($305,000 × 90%) ..........................................................................
Excess of cost over book value (debit balance) ........................................
Inventory ($20,000 × 90%) .......................................................................
Equipment ($25,000 × 90%) .....................................................................
Building ($80,000 × 90%) .........................................................................
Goodwill ...................................................................................................

$

$450,000
274,500
$175,500
(18,000)
(22,500)
(72,000)
63,000

Determination and Distribution of Excess Schedule
10% Investment
Price paid .................................................................................................
Equity ($305,000 × 10%) ..........................................................................
Excess of cost over book value (debit balance) ........................................
Inventory ($20,000 × 10%) .......................................................................
Equipment ($25,000 × 10%) .....................................................................
Building ($80,000 × 10%) .........................................................................
Goodwill ...................................................................................................

530

$

$45,000
30,500
$14,500
(2,000)
(2,500)
(8,000)
2,000


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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 + $18,000 + $2,000) ...............................
Accounts Receivable ..............................................................
Equipment ($75,000 + $22,500 + $2,500) ...............................
Building ($120,000 + $72,000 + $8,000) .................................
Land .......................................................................................
Goodwill ($63,000 + $2,000) ...................................................
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

531

40,000
60,000

300,000

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


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