EXERCISE 3-1

Determination and Distribution of Excess Schedule

Company
Implied
Fair Value
Fair value of subsidiary ....................
Less book value of interest acquired:
Common stock ($5 par) ..............
Paid-in capital in excess of par ...
Retained earnings ......................
Total equity ...........................
Interest acquired ........................
Book value .......................................
Excess of fair value over book
value ..........................................

$500,000*

Parent
Price
(80%)

NCI
Value
(20%)

$400,000

$100,000

$300,000
80%
$240,000

$300,000
20%
$ 60,000

$200,000

$160,000

$ 40,000

Adjustment

Worksheet
Key

$ 50,000
100,000
150,000
$300,000

Adjustment of identifiable accounts:

Equipment........................................
Goodwill ...........................................
Total ...........................................

$ 50,000
150,000
$200,000

debit D1
debit D2

Life

Amortization
per Year

$10,000

*$360,000/80% = $450,000

(a)

Event
2011
Subsidiary income of
$60,000 reported to parent

Simple Equity Method

Investment in Hebron Company .......
Subsidiary Income ......................

48,000

Dividends of $10,000 paid

by Hebron

Cash.................................................
Investment in Hebron Company .

8,000

2012
Subsidiary income of
$45,000 reported to parent

Investment in Hebron Company .......

Subsidiary Income ......................

36,000

Dividends of $10,000 paid

by Hebron

Cash.................................................
Investment in Hebron Company .

8,000

48,000
8,000

36,000
8,000

Exercise 3-1, Concluded

(b)

Event
2011
Subsidiary income of
($60,000 $10,000
amortization) 80%
reported to parent

Investment in Hebron Company .......

Subsidiary Income ......................

40,000

Dividends of $10,000 paid

by Hebron

Cash.................................................
Investment in Hebron Company .

8,000

Investment in Hebron Company .......

Subsidiary Income ......................

28,000

Cash.................................................
Investment in Hebron Company .

8,000

2012
Subsidiary income of
($45,000 $10,000
amortization) 80%
reported to parent
Dividends of $10,000 paid
by Hebron

Sophisticated Equity Method

40,000

8,000

28,000

8,000

(c)
Event
2011
Subsidiary income of
$60,000 reported to parent

Cost Method
No entry

Dividends of $10,000 paid

by Hebron

Cash.................................................
Dividend Income .........................

2012
Subsidiary income of
$45,000 reported to parent

No entry

Dividends of $10,000 paid

by Hebron

Cash.................................................
Dividend Income .........................

8,000
8,000

8,000
8,000