McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 4-1...
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McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Consolida tion as of the Date of Acquisiti 4 Electronic Presentation by Douglas Cloud Pepperdine University Baker / Lembke / Baker / Lembke / King King
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Transcript of McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 4-1...
4-4-11
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation as of the Date of Acquisition
4Electronic Presentation by
Douglas Cloud Pepperdine University
Baker / Lembke / KingBaker / Lembke / King
4-4-22
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation WorkpaperConsolidation Workpaper
Trial Balance Data Elimination Entries Account Titles Parent Subsidiary Debits Credits Consolidated
Work flow
4-4-33
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Nature of Eliminating EntriesNature of Eliminating Entries
Eliminating entries are used in the consolidation workpaper to adjust the totals of the individual account
balances of the separate companies...
Eliminating entries are used in the consolidation workpaper to adjust the totals of the individual account
balances of the separate companies...
…to reflect the amounts that would appear if all the legally
separate companies were actually a single company.
…to reflect the amounts that would appear if all the legally
separate companies were actually a single company.
4-4-44
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Full Ownership Purchased at Book ValueFull Ownership Purchased at Book Value
Peerless purchases all of Special Foods’ outstanding common stock for $300,000.
Peerless purchases all of Special Foods’ outstanding common stock for $300,000.
Let’s take a look at the balance sheets of Peerless and
Special Foods immediately before combination.
Let’s take a look at the balance sheets of Peerless and
Special Foods immediately before combination.
4-4-55
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
AssetsCash $ 350,000 $ 50,000 Accounts Receivable 75,000 50,000 Inventory 100,000 60,000 Land 175,000 40,000 Buildings and Equipment 800,000 600,000 Accumulated Depreciation (400,000 (300,000
Total Assets $1,100,000 $500,000 Liabilities and Stockholders’ Equity
Accounts Payable $ 100,000 $100,000 Bonds Payable 200,000 100,000 Common Stock 500,000 200,000 Retained Earnings 300,000 100,000
Total Liabilities and Stockholders’ Equity $1,100,000 $500,000
Balance Sheets Before CombinationBalance Sheets Before Combination
Peerless Special Foods
) )
4-4-66
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Investment cost $300,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $ -0-
Investment cost $300,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $ -0-
January 1, 20X1 entry:E(1) Investment in Special Foods Stock 300,000
Cash 300,000 Record purchase of Special Foods stock.
P
S
100%
Full Ownership Purchased at Book ValueFull Ownership Purchased at Book Value
)
4-4-77
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Balance Sheets After CombinationBalance Sheets After Combination
AssetsCash $ 50,000 $ 50,000 Accounts Receivable 75,000 50,000 Inventory 100,000 60,000 Land 175,000 40,000 Buildings and Equipment 800,000 600,000 Accumulated Depreciation (400,000 (300,000Investment in Special Foods Stock 300,000
Total Assets $1,100,000 $500,000 Liabilities and Stockholders’ Equity
Accounts Payable $ 100,000 $100,000 Bonds Payable 200,000 100,000 Common Stock 500,000 200,000 Retained Earnings 300,000 100,000
Total Liabilities and Stockholders’ Equity $1,100,000 $500,000
Peerless Special Foods
) )
4-4-88
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Cash 50,000 50,000 100,000Accounts Rec. 75,000 50,000 125,000Inventory 100,000 60,000 160,000Land 175,000 40,000 215,000Bldg. and Equip. 800,000 600,000 1,400,000Inv. in Sp. Foods 300,000Total Debits 1,500,000 800,000 2,000,000
Accum. Depr. 400,000 300,000 700,000Accounts Payable 100,000 100,000 200,000Bonds Payable 200,000 100,000 300,000Common Stock 500,000 200,000 500,000Retained Earn. 300,000 100,000 300,000Total Credits 1,500,000 800,000 2,000,000
100% Purchase at Book Value100% Purchase at Book Value
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Foods Debits Credits Consolidated
4-4-99
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Cash 50,000 50,000 100,000Accounts Rec. 75,000 50,000 125,000Inventory 100,000 60,000 160,000Land 175,000 40,000 215,000Bldg. and Equip. 800,000 600,000 1,400,000Inv. in Sp. Foods 300,000 (2) 300,000Total Debits 1,500,000 800,000 2,000,000
Accum. Depr. 400,000 300,000 700,000Accounts Payable 100,000 100,000 200,000Bonds Payable 200,000 100,000 300,000Common Stock 500,000 200,000 (2)200,000 500,000Retained Earn. 300,000 100,000 (2)100,000 300,000Total Credits 1,500,000 800,000 300,000 300,000 2,000,000
100% Purchase at Book Value100% Purchase at Book Value
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Foods Debits Credits Consolidated
4-4-1010
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Foods Debits Credits Consolidated
Cash 50,000 50,000 100,000Accounts Rec. 75,000 50,000 125,000Inventory 100,000 60,000 160,000Land 175,000 40,000 215,000Bldg. and Equip. 800,000 600,000 1,400,000Inv. in Sp. Foods 300,000 300,000Total Debits 1,500,000 800,000 2,000,000
Accum. Depr. 400,000 300,000 700,000Accounts Payable 100,000 100,000 200,000Bonds Payable 200,000 100,000 300,000Common Stock 500,000 200,000 200,000 500,000Retained Earn. 300,000 100,000 100,000 300,000Total Credits 1,500,000 800,000 300,000 300,000 2,000,000
100% Purchase at Book Value100% Purchase at Book Value
4-4-1111
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Common Stock--Special Foods 200,000Retained Earnings 100,000
Investment in Special Foods Stock 300,000
Eliminate investment balance.
Elimination Entry E(2)Elimination Entry E(2)
Entry E(2)
4-4-1212
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Errors or omissions on the books of the subsidiary
Excess of fair value over the book value of the subsidiary’s net identifiable assets
Existence of goodwill Other reasons
Purchase At More Than Book ValuePurchase At More Than Book Value
Reasons the purchase price of a company’s stock might exceed the stock’s book value:Reasons the purchase price of a company’s stock might exceed the stock’s book value:
4-4-1313
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchase At More Than Book ValuePurchase At More Than Book Value
January 1, 20X1 entry:E(3) Investment in Special Foods Stock 340,000
Cash 340,000 Record purchase of Special Foods stock.
P
S
100%
Investment cost $340,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $ 40,000
Investment cost $340,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $ 40,000
)
4-4-1414
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchase At More Than Book ValuePurchase At More Than Book Value
The elimination entry on the workpaper would be:E(4)Common Stock--Special Foods 200,000
Retained Earnings 100,000Differential 40,000
Investment in Special Foods Stock 340,000
P
S
100%
Investment cost $340,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $ 40,000
Investment cost $340,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $ 40,000
)
4-4-1515
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Cash 10,000 50,000Accounts Rec. 75,000 50,000Inventory 100,000 60,000Land 175,000 40,000Bldg. and Equip. 800,000 600,000Inv. in Sp. Foods 340,000DifferentialTotal Debits 1,500,000 800,000
Accum. Depr. 400,000 300,000Accounts Payable 100,000 100,000Bonds Payable 200,000 100,000Common Stock 500,000 200,000Retained Earn. 300,000 100,000Total Credits 1,500,000 800,000
Purchase At More Than Book ValuePurchase At More Than Book Value
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Foods Debits Credits Consolidated
(4) 40,000
(4)200,000(4)100,000
(4) 340,000
4-4-1616
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchase At More Than Book ValuePurchase At More Than Book Value
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Foods Debits Credits Consolidated
Cash 10,000 50,000Accounts Rec. 75,000 50,000Inventory 100,000 60,000Land 175,000 40,000Bldg. and Equip. 800,000 600,000Inv. in Sp. Foods 340,000DifferentialTotal Debits 1,500,000 800,000
Accum. Depr. 400,000 300,000Accounts Payable 100,000 100,000Bonds Payable 200,000 100,000Common Stock 500,000 200,000Retained Earn. 300,000 100,000Total Credits 1,500,000 800,000
(4) 40,000
(4)200,000(4)100,000
(4) 340,000
(5) 40,000
(5) 40,000
380,000 380,000
4-4-1717
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchase At More Than Book ValuePurchase At More Than Book Value
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Foods Debits Credits Consolidated
Cash 10,000 50,000Accounts Rec. 75,000 50,000Inventory 100,000 60,000Land 175,000 40,000Bldg. and Equip. 800,000 600,000Inv. in Sp. Foods 340,000DifferentialTotal Debits 1,500,000 800,000
Accum. Depr. 400,000 300,000Accounts Payable 100,000 100,000Bonds Payable 200,000 100,000Common Stock 500,000 200,000Retained Earn. 300,000 100,000Total Credits 1,500,000 800,000
(4) 40,000
(4)200,000(4)100,000
(4) 340,000
(5) 40,000
(5) 40,000
380,000 380,000
60,000125,000160,000255,000
1,400,000
2,000,000
700,000200,000300,000500,000300,000
2,000,000
4-4-1818
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Elimination Entry E(5)Elimination Entry E(5)
Land 40,000
Differential 40,000
Entry E(5)
4-4-1919
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Existence of GoodwillExistence of Goodwill
If a company purchases a subsidiary at a price in excess of the total of the fair
value of the subsidiary’s net identifiable assets, the additional amount generally is considered to be a payment for the excess earning power of the acquired company,
referred to as goodwill.
If a company purchases a subsidiary at a price in excess of the total of the fair
value of the subsidiary’s net identifiable assets, the additional amount generally is considered to be a payment for the excess earning power of the acquired company,
referred to as goodwill.
4-4-2020
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Existence of GoodwillExistence of Goodwill
If the fair values of Special Foods’ assets and liabilities are equal to their book values, and the $40,000 differential is
considered a payment for goodwill, the following elimination entry is needed:
If the fair values of Special Foods’ assets and liabilities are equal to their book values, and the $40,000 differential is
considered a payment for goodwill, the following elimination entry is needed:
E(6) Goodwill 40,000Differential 40,000
Assign differential to goodwill.
4-4-2121
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Illustration of Debit DifferentialIllustration of Debit Differential
Peerless Products acquires all Special Foods’ capital stock for $400,000 on January 1, 20X1, by issuing $100,000 of 9 percent first mortgage
bonds and paying cash of $300,000.
Peerless Products acquires all Special Foods’ capital stock for $400,000 on January 1, 20X1, by issuing $100,000 of 9 percent first mortgage
bonds and paying cash of $300,000.
4-4-2222
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Investment cost $400,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $100,000
Investment cost $400,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x 1.00 (300,000
Differential $100,000
P
January 1, 20X1 entry:
E(7) Investment in Special Foods Stock 400,000 Bonds Payable 100,000 Cash 300,000
Record purchase of Special Foods stock.
S
100%
Debit DifferentialDebit Differential
)
4-4-2323
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Debit DifferentialDebit Differential
Fair value of net identifiable assets
$330,000
Total differential$100,000
Excess of cost over fair value of net
identifiable assets$70,000
Excess of fair value over book value of
net identifiable assets
$30,000
Book value of net identifiable assets
$300,000
Cost of investment $400,000
4-4-2424
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Debit DifferentialDebit Differential
The eliminations entered in the consolidation workpaper in preparing the consolidated balance sheet immediately after the combination are:E(8) Common Stock--Special Foods 200,000
Retained Earnings 100,000 Differential 100,000
Investment in Special Foods Stock 400,000 Eliminate investment balance.
E(9) Inventory 15,000 Land 60,000 Goodwill 70,000
Buildings and Equipment 10,000Premium on Bonds Payable 35,000Differential 100,000
Assign differential.
4-4-2525
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
80 Percent Purchase at Book Value80 Percent Purchase at Book Value
On January 1, 20X1, Peerless Products purchases 80 percent of the outstanding common stock of Special Foods for $240,000 cash. The purchase price represents 80 percent of the book value of
Special Foods’ stock on the date of combination.
On January 1, 20X1, Peerless Products purchases 80 percent of the outstanding common stock of Special Foods for $240,000 cash. The purchase price represents 80 percent of the book value of
Special Foods’ stock on the date of combination.
4-4-2626
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Investment cost $240,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x .8 (240,000
Differential $ -0-
Investment cost $240,000
Book value:
Common stock--Special Foods $200,000
Retained earnings--Special Foods 100,000
$300,000
Peerless’s share x .8 (240,000
Differential $ -0-
80 Percent Purchase at Book Value80 Percent Purchase at Book Value
P
S
100%
NCI
20%
January 1, 20X1 entry:
E(14) Investment in Special Foods Stock 240,000 Cash 240,000
Record purchase of Special Foods stock.
)
4-4-2727
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Fd. Debits Credits Consolidated
80 Percent Purchase at Book Value
Cash 110,000 50,000Accounts Rec. 75,000 50,000Inventory 100,000 60,000Land 175,000 40,000Bldg. and Equip. 800,000 600,000Inv. in Sp. Foods 240,000Total Debits 1,500,000 800,000Accum. Depr. 400,000 300,000Accounts Payable 100,000 100,000Bonds Payable 200,000 100,000Common Stock 500,000 200,000Retained Earn. 300,000 100,000
Total Credits 1,500,000 800,000
240,000
200,000100,000
Nonctrl. Interest 60,000
4-4-2828
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Fd. Debits Credits Consolidated
80 Percent Purchase at Book Value80 Percent Purchase at Book Value
Cash 110,000 50,000Accounts Rec. 75,000 50,000Inventory 100,000 60,000Land 175,000 40,000Bldg. and Equip. 800,000 600,000Inv. in Sp. Foods 240,000Total Debits 1,500,000 800,000Accum. Depr. 400,000 300,000Accounts Payable 100,000 100,000Bonds Payable 200,000 100,000Common Stock 500,000 200,000Retained Earn. 300,000 100,000
Total Credits 1,500,000 800,000
240,000
200,000100,000
300,000 300,000
Nonctrl. Interest 60,000
4-4-2929
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Trial Balance Data Elimination Entries Account Titles Peerless Spec. Fd. Debits Credits Consolidated
80 Percent Purchase at Book Value80 Percent Purchase at Book Value
240,000
200,000100,000
300,000 300,000
160,000125,000160,000215,000
1,400,000
2,060,000700,000200,000300,000500,000300,000
60,0002,060,000
Cash 110,000 50,000Accounts Rec. 75,000 50,000Inventory 100,000 60,000Land 175,000 40,000Bldg. and Equip. 800,000 600,000Inv. in Sp. Foods 240,000Total Debits 1,500,000 800,000Accum. Depr. 400,000 300,000Accounts Payable 100,000 100,000Bonds Payable 200,000 100,000Common Stock 500,000 200,000Retained Earn. 300,000 100,000
Total Credits 1,500,000 800,000Nonctrl. Interest 60,000
4-4-3030
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Common Stock--Special Foods 200,000Retained Earnings 100,000
Investment in Special Foods Stock 240,000Noncontrolling Interest 60,000
Elimination Entry E(15)Elimination Entry E(15)
Entry E(15)
4-4-3131
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidated Balance Sheet--80 PercentConsolidated Balance Sheet--80 Percent
Peerless Products Corporation and SubsidiaryConsolidated Balance Sheet
January 1, 20X1Assets:
Cash $ 160,000Accounts Receivable 125,000Inventory 160,000Land 215,000Building and Equipment $1,400,000Accumulated Depreciation (700,000 700,000
Total Assets $1,360,000
ContinuedContinued
)
4-4-3232
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidated Balance Sheet--80 PercentConsolidated Balance Sheet--80 Percent
Liabilities:Accounts Payable $ 200,000Bonds Payable 300,000
Noncontrolling Interest 60,000
Stockholders’ Equity:Common Stock 500,000Retained Earnings 300,000
Total Liabilities and Equity $1,360,000
4-4-3333
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter FourChapter Four
The The EndEnd
