Consolidated Statements

1
Chapter 2

• Consolidated Statements
• Date of Acquisition

2
The consolidation concept

• Merge two legal entities into one economic entity
• Generally required with over 50 ownership, that
  requirement may be relaxed. FASB may move to
  definition of Control (could exist below 50).
• Always ask - what should be left when you put on
  one firm eye glasses.

3

• Assets Liabilities Equity
• Inventory 120,000 Bond Payable 100,000
• Land 50,000 Com. stock, 5 par 10,000
• Building 250,000 Retained earnings 310,000
• Total 420,000 Total 420,000
• Fair Values
• Inventory (priority) 170,000 Bond Payable
  (priority) 105,000
• Land 100,000
• Building 300,000
• Patents 50,000

4

• Using purchase rules
• Goodwill above what price? 515,000
• at 550,000 Goodwill 35,000
• Bargain below what price? 515,000
• at 245,000, 180,000 (245,000 - 65,000 to
  priority) is assigned non-priority accounts
• Extraordinary gain below what price? 65,000
• at 50,000, the extraordinary gain is 15,000

5
550,000

• Price 550,000
• Equity (100 ? 320,000) 320,000
• Excess cost 230,000
• Adjustments
• Inventory (increase to 170,000) 50,000
• Bonds payable (decrease liability) (5,000)
• Land (Increase to 100,000) 50,000
• Building (increase to 300,000) 50,000
• Patents (record) 50,000 195,000
• Goodwill (record) 35,000

6
Eliminations for 550,000 price
7
245,000

• Price 245,000
• Equity (100 ? 320,000) 320,000
• Excess cost (75,000)
• Adjustments
• Inventory (increase to 170,000) 50,000
• Bonds payable (decrease liability)) (5,000)
• Land (allocation on next slide) (10,000)
• Building (allocation on next slide) (130,000)
• Patents (allocation on next slide) 20,000
  (75,000)
• 0

8
Allocation
9
Eliminations for 245,000 price
10
50,000
Price 50,000 Equity (100 ? 320,000)
320,000 Excess cost (270,000) Adjustments Inven
tory (increase to 170,000) 50,000 Bonds
payable (decrease liability) (5,000) Land
(eliminate book value) (50,000) Building
(eliminate book value) (250,000) (255,000) Extraor
dinary gain (15,000)
11
Eliminations for 50,000 price
12
For an 80 purchase

• Use the same subsidiary information for 80
  purchase
• All adjustments are for 80 of fair-book
  difference
• Above what price will there be goodwill? 412,000
• 515,000 ? 80 412,000
• We will use 430,000 so goodwill 18,000
• Below what price will there be a bargain?
  412,000
• 515,000 ? 80 412,000
• If price was 241,000, 189,000 (241,000 -
  65,000 ? 80) is available for Ps 80 share
  of non-priority accounts
• Extraordinary gain below what price? 52,000
• 80 ? 65,000 52,000

13
Analysis 80 purchase
14
For 80 interest at 430,000
Price 430,000 Equity (80 ? 320,000) 256,000 Ex
cess cost 174,000 Adjustments Inventory (80 ?
50,000) 40,000 Bonds payable (80 ? 5,000)
(4,000) Land (80 ? 50,000) 40,000 Building
(80 ? 50,000) 40,000 Patents (80 ? 50,000)
40,000 156,000 Goodwill 18,000
15
Eliminations for 430,000 price
16
For 80 interest at 241,000
Price 241,000 Equity (80 ? 320,000) 256,000 Ex
cess cost (15,000) Adjustments Inventory (80
? 50,000) 40,000 Bonds payable (80 ? 5,000)
(4,000) Land (allocation next slide)
2,000 Building (allocation next slide)
(74,000) Patents (allocation next slide)
21,000 (15,000 ) 0
17
Allocation
18
Eliminations for 241,000 price
19
For 80 interest at 500,000

• Price 500,000
• Equity (80 ? 450,000) 360,000
• Excess cost 140,000
• Adjustments
• Inventory (80 ? 40,000) 32,000
• Land (80 ? 30,000) 24,000
• Building (80 ? 120,000) 96,000 152,000
• Reduce existing goodwill (12,000)
• On the worksheet, existing goodwill is reduced
  12,000
• The maximum deduction would be 40,000 (80?
  50,000)

20
Pooling of interests

• Investment should was at book value
• Equity transfer applies only to parent ownership
  percentage (90 or more)
• Investment always eliminated with no excess.