Problem: On January 1, 2009, Parker bought a 55% interest in Smith, Inc. Parker paid for the transaction with $3 million cash and 500,000 shares of Parker common stock (par value $1.00 per share). At the time of the acquisition, Smith's book value was $16,970,000. The remaining 45 percent of Smith's shares traded closely near an average price that totaled $8,550,000.
On January 1, Parker's stock had a market value of $14.90 per share and there was no control premium in this transaction. Any consideration transferred over book value is assigned to goodwill. Smith had the following balances on January 1, 2009.
Book Value Fair Value
Land 1,700,000 2,550,000
Buildings (7-year remaining life) 2,700,000 3,400,000
Equipment (5-year remaining life) 3,700,000 3,300,000
For internal reporting purposes, Parker employed the equity method to account for this investment.
| Accounts |
Parker |
Smith |
Consolidation Entries |
NCI |
Consolidated Totals |
| Debit |
Credit |
| Revenues |
(298,000,000) |
(103,750,000) |
|
|
|
|
|
|
| Expenses |
271,000,000 |
95,800,000 |
|
|
|
|
|
|
| Equity in Sub Income |
(4,361,500) |
|
|
|
|
|
|
|
| Separate Net Income |
(31,361,500) |
(7,950,000) |
|
|
|
|
|
|
| Consolidated Net Income |
|
|
|
|
|
|
|
|
| NCI in Smith's Income |
|
|
|
|
|
|
|
|
| NI to Controlling Interest |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| R/E, 1/1/09 |
(2,500,000) |
(100,000) |
|
|
|
|
|
|
| Net Income |
(31,361,500) |
(7,950,000) |
|
|
|
|
|
|
| Dividends |
5,000,000 |
3,000,000 |
|
|
|
|
|
|
| R/E, 12/31/09 |
(28,861,500) |
(5,050,000) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current Assets |
30,500,000 |
20,800,000 |
|
|
|
|
|
|
| Investment in Smith |
13,161,500 |
|
|
|
|
|
|
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| |
|
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|
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|
|
|
|
| |
|
|
|
|
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|
|
|
| Land |
1,500,000 |
1,700,000 |
|
|
|
|
|
|
| Building (net) |
5,600,000 |
2,360,000 |
|
|
|
|
|
|
| Equipment (net) |
3,100,000 |
2,960,000 |
|
|
|
|
|
|
| Goodwill |
|
|
|
|
|
|
|
|
| Total Assets |
53,861,500 |
27,820,000 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Liabilities |
(3,100,000) |
(4,900,000) |
|
|
|
|
|
|
| Notes Payable |
|
(1,000,000) |
|
|
|
|
|
|
| NCI, 1/1 |
|
|
|
|
|
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|
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| |
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| NCI, 12/31 |
|
|
|
|
|
|
|
|
| Common Stock |
(2,900,000) |
(6,000,000) |
|
|
|
|
|
|
| Additional PIC |
(19,000,000) |
(10,870,000) |
|
|
|
|
|
|
| R/E, 12/31/09 |
(28,861,500) |
(5,050,000) |
|
|
|
|
|
|
| Total Liabilities & SHE |
(53,861,500) |
(27,820,000) |
|
|
|
|
|
|
REQUIRED:
1. Prepare a schedule to determine goodwill and the amortization and allocation amounts.
2. Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment.