Question: On April 1, Year 1, Company P
On April 1, Year 1, Company P purchased 85% of S Company for total consideration of $357,000, which included $30,000 of contingent consideration as measured according to GAAP at fair value. Each company has a December 31 year-end. The complete equity method is used to account for the investment in S. The income statements, balance sheets, and the statements of cash flows for relevant time periods are reported below along with consolidated numbers. On the acquisition date, land on Company S’s books is undervalued by $40,000. Any remaining excess of purchase price over fair value of net assets is attributed to goodwill. At the end of Year 1, Company S declared, but did not pay, a $30,000 dividend. The contingent consideration had increased in fair value to $36,600 as of December 31, Year 1. The financial statements are presented below.
Required:
1. Prepare the computation and allocation of difference between implied and book value acquired schedule on the date of acquisition.
2. Prepare the consolidated workpaper for year 1.
3. Examine the consolidated statement of cash flows prepared using the indirect format. Determine how the following amounts were computed and indicate the direction of the change in the account and the effect of the change on cash from operations.
a. Controlling interest in income, $148,620
b. Cash paid for acquisitions, $320,400
c. The change in accounts receivable, $15,300
d. The change in inventory, ($15,600)
e. The change in accounts and notes payable, $61,500
Transcribed Image Text:
009'S60I 000'vES $485,400 232,200 $1,216,320 000' 681 0z9 19E 000'E IZ 0z9 198 009 EZ 009 1 000'EI7 Retained Earnings Oher Contributed Capital Capital Stock, $5 par Value Noncontrolling Interest 000'0S 000oz 000'0S 000'0S 000'oz 121,200 00079 I 00079 I 000 e 000 e 69,480 00s' Dividends Payable Contingent Con sideration 000'0E 000'0E 00'9E 000'0E 36,600 0or'16 IS 0006ES 000SLS 0or'91 IS 00' IOIS 000'6ES Accourts and Noes Payable 009'S60I 000'rBS $1,368,300 00001S $1,216,320 000' 6L7 000 E16 009' 195 000'oIS 000'OLZ 000'0IS Pro perty and Equip ment 311 400 008 St Goodwill 000' LSE 000 LSE Investment in S Company OE' LIZ OE'6E I 00'EL 000TEI 25,500 Dividends Receivable 000' 18 009 u 000 69 000'zo1 Accounts Receivable 199,300 000'09s 000' EES 00009s 000'S IS 000'8IS 00'9 008'91 000'6s S Co. 0 NIERI SCo. P Co. P Co. P Co. S Co. Balance Sher Consolida ed Three Months ending April Ist, Year I For the Year ending December 31, Yea i Income Statement P Co. S Co. P Co. S Co Consolidated Revenue 315,000 195,000 1,260,000 780,000 1,845.000 Equity Income 62,220 Total Revenue 315,000 195,000 1,322,220 780,000 1,845,000 Cost of Goods Sold 231000 113,100 924,000 452,400 1,263,300 Selling, General & Administration 48,000 2400 192,000 156,000 324.000 Other Expenses 54,000 662,400 14,400 13,500 57,600 98,100 Tatal Expenses 293,400 150,600 1,173,600 1,685,400 Consolidatd Income 159,600 Noncontrolling Interest Income to Retained Earnings (10,980) 148,620 21,600 44,40) 148,620 117,600 Beginning Retained Eamings 1/1 Net Income (from above) 213,000 144,600 213,000 144,600 213,000 21,600 44,400 148,620 117,600 148,620 Dividends Declared 30,000 Ending Retained Earnings 234,600 189000 361,620 232,200 361,620 Statement of Cash Flows For Year Ending 12/31/Year 1 P Company S Company Consolidated Net Income 111,900 117,600 159,600 De preciation 40,000 45,000 73,750 Change in Following Accounts: Accounts Receivable 23,700 (12,000) 15,300 Dividends Receivables (25,500) Inventory (7,200) (4,800) (15,600) Accounts and Notes Payable 77,100 (23,400) $61,500 Contingent Consideration Cash from Operations 6,600 6,600 226,600 122,400 301,150 Investing Purchase Property, Plant & Equipment (91,600) (86,400) (157,750) Acquisitions Cash from Investing Activities (327,000) (418,600) (320,400) (478,150) (S86,400) Financing Issue (retire) Debt or Stock 150,000 150,000 Cash Dividends Paid (30,000) (30,000) Cash from Financing Activities 150,000 150,000 Change in cash ($42,000) $6,000 ($27,000)
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