Comprehensive Problem
Instruction: this problem tests knowledge from all chapters of business combinations (consolidation). The acquisition date data is given at the beginning of the problem. Then additional data is provided for each individual question/situation. Read carefully to identify which information actually applies to the particular question. You are required to use the excel spreadsheet to finish the project. Your final product will be one excel file withseparate worksheets for each individual question. It is required for you to use the basic excel formula such as ‘=', ‘=a1+a2', etc., so the numbers carry forward automated to the final answers. Prepare your excel spreadsheet in a professional way that is easily understandable. I assign 10 points to the appearance of your final product. The project is due right before your third exam. You are required to submit it electronically by using the drop box on the blackboard.
Acquisition date data:
Doone acquired 80 percent of Akron's outstanding shares on January 1, 2013, in exchange for $369,000 in cash. The subsidiary's stockholders' equity accounts totaled $353,000 and the noncontrolling interest had a fair value of $92,250 on that day. However, a building (with a ten-year remaining life) in Akron's accounting records was undervalued by $19,000. Doone assigned the rest of the excess fair value over book value to Akron's patented technology (five-year remaining life).
1. Prepare schedules for acquisition-date fair-value allocations and amortizations for year 2013 for Doone's investment in Akron (Question1).
2. Akron reported net income from its own operations of $67,000 in 2013 and $83,000 in 2014. Akron declared dividends of $18,000 in 2013 and $22,000 in 2014.Doone applies the equity method for recording its investment in the Akron. Given the above acquisition date data and the additional information, show the calculation of ending balance of investment in Akron on Dec 31, 2014 and amount of equity in investee earnings for year 2014 for Doone(Question2)
3. Given the above information at acquisition date and in Question 2, Akronalso sells inventory to Doone as follows:
|
Year
|
Cost to Akron
|
Transfer Price
to Doone
|
Inventory Remaining
at Year-End
(at transfer price)
|
|
2013
|
$
|
72,000
|
|
$
|
130,000
|
|
$
|
28,000
|
|
|
2014
|
|
97,500
|
|
|
150,000
|
|
|
40,500
|
|
|
2015
|
|
87,500
|
|
|
175,000
|
|
|
50,000
|
|
At December 31, 2015, Doone owes Akron $19,000 for inventory acquired during the period.
The following separate account balances are for these two companies for December 31, 2015. Note: Parentheses indicate a credit balance.
|
|
Doone
|
Akron
|
|
Sales revenues and interest income
|
$
|
(868,000
|
)
|
$
|
(381,000
|
)
|
|
Cost of goods sold
|
|
518,000
|
|
|
212,000
|
|
|
Expenses
|
|
185,700
|
|
|
64,000
|
|
|
Equity in earnings of Akron
|
|
(59,540
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
(223,840
|
)
|
$
|
(105,000
|
)
|
|
|
|
|
|
|
|
|
|
Retained earnings, 1/1/15
|
$
|
(494,000
|
)
|
$
|
(284,000
|
)
|
|
Net income (above)
|
|
(223,840
|
)
|
|
(105,000
|
)
|
|
Dividends declared
|
|
132,000
|
|
|
22,000
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, 12/31/15
|
$
|
(585,840
|
)
|
$
|
(367,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash and receivables
|
$
|
149,000
|
|
$
|
101,000
|
|
|
Inventory
|
|
270,000
|
|
|
151,000
|
|
|
Investment in Akron
|
|
456,000
|
|
|
0
|
|
|
Long-term Investment and PPE (net)
|
|
967,000
|
|
|
331,000
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,842,000
|
|
$
|
583,000
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
$
|
(726,160
|
)
|
$
|
(37,000
|
)
|
|
Common stock
|
|
(530,000
|
)
|
|
(179,000
|
)
|
|
Retained earnings, 12/31/15
|
|
(585,840
|
)
|
|
(367,000
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
$
|
(1,842,000
|
)
|
$
|
(583,000
|
)
|
What amounts make up the $59,540 equity earnings of Akron account balance for 2015 and what amounts make up the $456,000 Investment in Akron account balance as of December 31, 2015? Show the detailed calculation (Question3)
Given the above data, prepare the complete consolidation worksheet to determine appropriate balances for external financial reporting as of December 31, 2015(Question4)
4. Doone sold Akron a building on January 2, 2014. It had cost Doone $100,000 but had $90,000 in accumulated depreciation at the time of this transfer. The price was $25,000 in cash. At that time, the building had a 5-year remaining life. Prepare the necessary consolidation entries related to intra-entity sale of building for year 2014 and year 2015 (Question5)
5. On January1, 2014, Doone acquired on the open market bonds for $10,800 originally issued by Akron. This investment had an effective rate of 8%. The bonds had a face value of $10,000 and a cash interest rate of 9%. At the date of acquisition, these bonds were shown as liabilities by Akron with a book value of $8,400 (based on an effective rate of 11%). Prepare the necessary consolidation entries for these bonds on December 31, 2014 and December 31, 2015. You have to include the Akron's bond issue amortization schedule, Doone and Akron's individual financial records, side by side comparison of effects of intra-entity debt transaction, and consolidation entry for each year (Question6)