Adv Accounting Unit 4
Adv Accounting Unit 4
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For this assignment, use your Fundamentals of Advanced Accounting text to complete the following:
● Problem 24 on page 194. This problem tests your ability to address several valuation and income determination questions for a business combination involving a noncontrolling interest.
On January 1, Patterson Corporation acquired 80 percent of the 100,000 outstanding voting shares of Soriano, Inc., in exchange for $31.25 per share cash. The remaining 20 percent of Soriano’s shares continued to trade for $30 both before and after Patterson’s acquisition.
At January 1, Soriano’s book and fair values were as follows:
In addition, Patterson assigned a $600,000 value to certain unpatented technologies recently developed by Soriano. These technologies were estimated to have a three-year remaining life.
During the year, Soriano declared a $30,000 dividend for its shareholders. The companies reported the following revenues and expenses from their separate operations for the year ending December 31.
Patterson Soriano
Revenues $3,000,000 $1,400,000
Expenses 1,750,000 600,000
a.What amount should Patterson recognize as the total value of the acquisition in its January 1 consolidated balance sheet?
b.What valuation principle should Patterson use to report each of Soriano’s identifiable assets and liabilities in its January 1 consolidated balance sheet?
c.For years subsequent to acquisition, how will Soriano’s identifiable assets and liabilities be valued in Patterson’s consolidated financial statements?
d.How much goodwill resulted from Patterson’s acquisition of Soriano?
e.What is the consolidated net income for the year and what amounts are allocated to the controlling and noncontrolling interests?
f.What is the noncontrolling interest amount reported in the December 31 consolidated balance sheet?
g.Assume instead that, based on its share prices, Soriano’s January 1 total fair value was assessed at $2,250,000. How would the reported amounts for Soriano’s net assets change on Patterson’s acquisition-date consolidated balance sheet?
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For this assignment, use your Fundamentals of Advanced Accounting text and the Excel spreadsheet provided on the companion website (linked in Resources) to complete the following:
● Problem 39 on page 203. This problem tests your ability to carry out the consolidation of account balances for a business combination using the acquisition method. In the spreadsheet, use tab P04-39 for your answers.
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $802,720 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $1,003,400 although Sierra’s book value was only $690,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows:
Book Value
Fair Value
Land
$ 65,000
$ 290,000
Buildings and
equipment (10-year remaining life)
287,000
263,000
Copyright (20-year remaining life)
122,000
216,000
Notes payable (due in 8 years)
(176,000)
(157,600)
For internal reporting purposes, Padre, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2018, for both companies.
Padre
Sierra
Revenues
$(1,394,980)
$ (684,900)
Cost of goods sold
774,000
432,000
Depreciation expense
274,000
11,600
Amortization expense
0
6,100
Interest expense
52,100
9,200
Equity in income of Sierra
(177,120)
–0–
Net income
$ (472,000)
$ (226,000)
page 204Retained earnings, 1/1/18
$(1,275,000)
$ (530,000)
Net income
(472,000)
(226,000)
Dividends declared
260,000
65,000
Retained earnings, 12/31/18
$(1,487,000)
$ (691,000)
Current assets
$ 856,160
$ 764,700
Investment in Sierra
927,840
–0–
Land
360,000
65,000
Buildings and equipment (net)
909,000
275,400
Copyright
–0–
115,900
Total assets
$ 3,053,000
$ 1,221,000
Accounts payable
$ (275,000)
$ (194,000)
Notes payable
(541,000)
(176,000)
Common stock
(300,000)
(100,000)
Additional paid-in capital
(450,000)
(60,000)
Retained earnings (above)
(1,487,000)
(691,000)
Total liabilities and equities
$(3,053,000)
$(1,221,000)
At year-end, there were no intra-entity receivables or payables.
Prepare a worksheet to consolidate the financial statements of these two companies.
