TACCT 500 Fall 2019
Final Exam- Take Home Problem
Pop Corporation acquired 80% of Soda Company’s common stock for $32,800 on January 1, XXXXXXXXXXThe reported equity of Soda on January 1, 2017 was $3,000 in common stock and $7,000 in retained earnings. The fair value of the noncontrolling interest was $8,200. Soda’s assets and liabilities were reported at fair value at the date of acquisition, except for these items:
Book Value
Fair Value
Land
$2,000
$8,000
Buildings (Accumulated Depreciation was $200)
8,000
1,000
Identifiable intangibles
0
7,000
The buildings had a remaining useful life of 7 years, and the identifiable intangibles are amortized over 5 years as of the date of acquisition, both straight-line. Goodwill was impaired by $2,000 in 2017 and is unimpaired in XXXXXXXXXXThe land, buildings, and identifiable intangibles are still held by Soda.
It is now December 31, 2018 (two years since the acquisition took place). The trial balances of Pop and Soda are in the consolidation working paper below. Soda reported net income of $3,100 and dividends of $400 during XXXXXXXXXXInformation on intercompany transactions is as follows:
1. On January 2, 2017, Pop sold Soda equipment for a price of $800. The equipment had a book value of $300 (cost of 400 less accumulated depreciation of $100) at the time of sale, and a remaining life of 5 years, straight-line.
2. Soda sells merchandise to Pop on a continuing basis, at a markup of 20% on cost. Pop’s 2018 beginning inventory contains $90 in goods purchased from Soda (cost was $75). Pop’s 2018 ending inventory contains $120 in goods purchased from Soda (cost was $100). Total intercompany sales for 2018 were $3,000.
Pop uses the complete (full) equity method of accounting.
Required
a. Calculate the total goodwill arising from this acquisition.
. Prepare a schedule roll forwarding the excess of fair value over book value items.
. Present a schedule computing Pop’s equity in net income of Soda for 2018, and the noncontrolling interest in net income for XXXXXXXXXXPop uses the who
c. Prepare the equity entries On Pop’s books for 2018
d. Present all consolidation entries that would appear in a three-part consolidation worksheet as of December 31, 2018.
Note: Below (and included as a separate excel file) is the worksheet for this problem. You do not have to complete it. If you fill it in, it is not a substitute for requirement d.
Consolidation working paper, December 31, 2018
PopSodaConsolidated
Dr (Cr)Dr (Cr)DrCrDr (Cr)
Cu
ent assets17,380 6,000
Land8,000 5,000
Buildings & equipment (net)
Identifiable intangibles
Goodwill
Cu
ent liabilities(9,000)(4,500)
Long-term debt(158,048)(15,900)
Capital stock(10,000)(3,000)
Retained earnings, Jan. 1(19,680)(10,000)
AOCI, Jan. 1(2,000)
Revenues(155,000)(40,100)
Net Income of Soda(2,256)
Operating expenses
OCI(200)
NCI in Net Income of Soda
Total0 0
145,200 25,100
Investment in Soda34,804
32,000 9,000
NCI in Net Assets of Soda
Dividends800 400
Cost of goods sold118,000 28,000