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a. Common Stock 160,000 Other Contributed Capital 92,000 Retained Earnings 43,000 Difference between implied and book value 56,000 (351,000/100% - (160,000+92,000+43,000) Investment in Saltez 351,000 Property, Plant, and Equipment 56,000 - PowerPoint PPT Presentation
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a. Common Stock 160,000 Other Contributed Capital 92,000 Retained Earnings 43,000 Difference between implied and book value 56,000
(351,000/100% - (160,000+92,000+43,000) Investment in Saltez 351,000
Property, Plant, and Equipment 56,000 Difference between implied and book value 56,000 b. Common Stock 190,000
Other Contributed Capital 75,000 Difference between implied and book value 21,778
(232,000/0.9-[190,000+75,000-29,000]) Retained Earnings 29,000
Investment in Saltez 232,000Noncontrolling Interest 25,778
Property, Plant, and Equipment 21,778 Difference between implied and book value 21,778
c. Common Stock 180,000 Other Contributed Capital 40,000 Retained Earnings 4,000 Investment in Saltez 159,000 Gain on Purchase of Business – Prancer ** 13,800
Noncontrolling Interest (.2) ($198,750) + $3,450* 43,200 ** The ordinary gain to Prancer is $159,000 – (.80)($216,000) = $13,800* Noncontrolling interest reflects the noncontrolling share of implied value (.20 x $198,750, or $39,750), plus the NCI portion of the bargain (.20 x $17,250) NOTE: We know this is a bargain acquisition in part c because the investment cost of $159,000 implies a total value of $198,750. Since this value is less than the book value of equity of $216,000 [$180,000+$40,000-$4,000], the difference is a bargain of $17,250. This bargain is allocated between the parent (this portion is reflected as a gain) and the NCI.
Part A Investment in Sun Company 192,000 Cash 192,000
Part B PRUNCE COMPANY AND SUBSIDIARYConsolidated Balance SheetJanuary 2, 2008
AssetsCash ($260,000 + $64,000 – $192,000) $132,000 Accounts Receivable 165,000 Inventory 171,000 Plant and Equipment (net) 484,000 Land ($63,000 + $32,000 + $28,333*) 123,333
Total Assets $1,075,333
Liabilities and Stockholders’ EquityAccounts Payable $151,000 Mortgage Payable 111,000
Total Liabilities 262,000
Noncontrolling Interest ($192,000/0.9 0.1) $21,333Common Stock 400,000 Other Contributed Capital 208,000Retained Earnings 184,000
Total Stockholders’ Equity 813,333 Total Liabilities and Stockholders’ Equity $1,075,333
* [$192,000/0.9 – ($70,000 + $20,000 + $95,000)] = $28,333
Exercise 3-6
Part A $37,412 NCI = 15% NCI$249,412 Implied Value*
Common Stock-Shipley 90,000 Other Contributed Capital-Shipley 90,000 Retained Earnings-Shipley 56,000 Land $249,412 - $236,000 13,412
Investment in Shipley Company 212,000 Noncontrolling Interest 37,412
* Implied Value = Parent’s value $212,000 + NCI $37,412 = $249,412
Cash $ 15,900
Accounts Receivable 22,000
Inventory 34,600
Plant and Equipment 147,000
Land ($220,412 - $13,412 - $120,000) 87,000
Total Assets $ 306,500
Accounts Payable $ 70,500
Common Stock 90,000
Other Contributed Capital 90,000
Retained Earnings 56,000
Total Equities $ 306,500
SHIPLEY COMPANYBalance SheetDecember 31, 2007
Part B
Problem 3-7
(Part A) (Part B)
Cash ($700,000 – $594,000 + $ 111,000) $ 217,000 $ 811,000
Accounts Receivable (net) 1,122,000 1,122,000
Inventory 604,000 604,000
Property and Equipment (net) 2,395,000 2,395,000
Land 214,000 214,000
Total Assets $4,552,000 $5,146,000
Accounts Payable $ 454,000 $ 454,000
Notes Payable 649,000 649,000
Long-term Debt 440,000 440,000
Noncontrolling Interest ($500,000 + $80,000 + $80,000) 0.10) 66,000 66,000
Common Stock (Part B, 1800000+(11880×20) 1,800,000 2,037,600
Other Contributed Capital (Part B, $543,000 + [($50 – $20) 11,880] 543,000 899,400
Retained Earnings 600,000 600,000
Total Equities $4,552,000 $5,146,000