Step 1: Implied Value

Amount Paid
For 80% of Sam
Implied Value:

240,000
/.8
300,000

Excess:
Goodwill:

300,000
(200,000)
(25,000)
75,000
75,000

Step 2: Why?
Implied Value
Common Stock
Retained Earnings

Step 3: How to Get Rid of Excess

Excess is Goodwill
Step 4: Income from Sam
Reported Income of Sam 2011
Preferred
Excess Amortization
Add: End Constructive Gain on Ret of Bonds
Add: Beg Unrealized Gain Land
Adjusted Book Income:
Income from Sam: (80%)
Add: Beg Unrealized Profit Inventory
Less: End Unrealized Profit Inventory
Income from Sam:

60,000
(10,000)
0
7,500
10,000
67,500
54,000
12,000
(16,000)
50,000

Step 5: Investment in Sam

BV of Sam:
Unamortized excess:
Add: Constructive Gain on Ret of Bonds
FV of Sam 2011:
Investment in Sam (80%):
Less: End Unrealized Profit Inventory
Investment in Sam:

290,000
75,000
7,500
372,500
298,000
(16,000)
282,000

20%

20%

Michael Dauphinee
Problem 10-4

NCI Share
13,500

NCI
74,500

Number
JE1

Account
AP

Debit

Credit
5,000

AR
JE2

Sales

5,000
60,000

COGS
JE3

COGS

60,000
16,000

Inventories
JE4

Investment in Sam

16,000
12,000

COGS
JE5

Beg NCI Common

Investment - Sam

12,000
2,000
8,000

Gain on Land
JE6

10,000

Bond Payable
Interest Income
Add: End Con
Investment in Sam Bonds
Add: Beg Unre
Interest Expense
Gain on Bonds

100,000
6,500

Add: Beg Unr

Income from Sam
Investment - Sam
Dividends

50,000

JE8

92,500
5,000
9,000

42,000
8,000

Preferred Stock
Beg NCI Preferred

100,000

Add: Constru
Common Stock
Beg Retained Earning - Sam
Goodwill
Beg NCI Common
Investment in Sam

200,000
50,000
75,000

JE10

NCI Share Common

NCI Share Preferred

100,000

65,000
260,000
13,500
10,000

Dividends
End NCI

12,000
11,500

Michael Dauphinee
Problem 10-4

Par Corporation and Sam Corporation

Consolidated Statement
for the year ended December 31, 2011
Accounts

Par

Income Statement
Sales
Income from Sam
Cost of Sales

Sam (80%)

$900,000
$50,000
$600,000

$300,000
$0
$140,000

$6,500

$0

Operating Expense
Interest Expense
Gain on Land
Gain on Bonds
Consolidated NI
Noncontrolling Share Preferred
Add: End Constructive Gain on Ret of Bon
Add: Beg Unrealized Gain Land

$208,500
$0
$10,000
$0
$0
$0
$0
$158,000

$90,000
$10,000
$0
$0
$0
$0
$0
$60,000

Retained Earnings
Add: Beg Unrealized Profit Inventory
Retained Earnings - Sam
Controlling Share of NI
Dividends

$132,000
$0
$158,000
$100,000

$0
$50,000
$60,000
$20,000

Retained Earnings -Dec 31st

$190,000

$90,000

Add: Constructive Gain on Ret of Bonds

Assets:
Cash
Accounts Receivable
Other Current Assets
Inventories
Land
Plant & Equipment - Net
Investment in Sam

$5,500
$26,000
$100,000
$80,000
$160,000
$268,000
$282,000

$15,000
$20,000
$5,000
$60,000
$30,000
$420,000
$0

Interest Income

Investment in Sam Bonds

Goodwill
Liabilities & Equity
Accounts Payable
Other Liabilities
10% Bonds Payable
10% Preferred Stock
Common Stock
Retained Earnings

Noncontrolling Interest - Common January 1st

Noncontrolling Interest - Preferred January 1st
Noncontrolling Interest December 31st

$92,500
$0
$1,014,000

$0
$0
$550,000

$24,000
$100,000
$0
$0
$700,000
$190,000
$1,014,000

$15,000
$45,000
$100,000
$100,000
$200,000
$90,000
$550,000

and Sam Corporation

ated Statement
ed December 31, 2011
Adjustment and Eliminations Consolidated Statements
Debit
Credit
b
g

60,000
50,000

16,000

6,500

60,000

12,000
$0

f
e
f
j
j

$1,140,000
$0
$684,000

5,000
10,000
9,000

10,000
13,500

50,000
g
j

8,000
12,000

$298,500
$5,000
$20,000
$9,000
$181,500
$10,000
$13,500
$158,000

$132,000
$0
$158,000
$100,000
$190,000

d
e

5,000

16,000

g
I

42,000
260,000

12,000
8,000

$20,500
$41,000
$105,000
$124,000
$190,000
$688,000
$0

f
I

75,000

5,000

f
h
I

100,000
100,000
200,000

92,500

2,000 I
h
j
$708,000

$0
$75,000
$1,243,500
$34,000
$145,000
$0
$0
$700,000
$190,000

65,000
100,000
11,500
$708,000

$174,500
$1,243,500

Michael Dauphinee
Problem 10-4
Consolidation Key:
JE1=a
JE2=b
JE3=c
JE4=d
JE5=e
JE6=f
JE7=g
JE8=h
JE9=i
JE10=j