Question

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $93,800. At that date, the fair value of the noncontrolling interest was $40,200. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

	Phone					Smart
Item	Corporation					Corporation
Cash		$	59,300				$	24,000
Accounts Receivable			91,000					53,000
Inventory			130,000					78,000
Land			62,000					39,000
Buildings & Equipment			410,000					253,000
Less: Accumulated Depreciation			(151,000	)				(74,000	)
Investment in Smart Corporation			93,800
Total Assets		$	695,100				$	373,000
Accounts Payable		$	147,500				$	31,000
Mortgage Payable			285,600					229,000
Common Stock			72,000					38,000
Retained Earnings			190,000					75,000
Total Liabilities & Stockholders’ Equity		$	695,100				$	373,000

At the date of the business combination, the book values of Smart’s assets and liabilities approximated fair value except for inventory, which had a fair value of $84,000, and buildings and equipment, which had a fair value of $194,000. At December 31, 20X4, Phone reported accounts payable of $12,800 to Smart, which reported an equal amount in its accounts receivable.

Required:
a. Prepare the consolidation entry or entries needed to prepare a consolidated balance sheet immediately following the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

b. Prepare a consolidated balance sheet worksheet. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
  

c. Prepare a consolidated balance sheet in good form. (Amounts to be deducted should be indicated with a minus sign.)
  

Answer 1

working notes

1) Net Asset Of Subsidiary

	ON 1/1/20X4
stock	38,000
retained earnings	75,000
inventory (fv)	6,000
buiding and equipment(fv)	-59,000
	60,000

2) Goodwill

p'investment 93,800

NCI 40,200

FV of net asset of sbsidiary   -60,000

  74,000

consolidated statement of financial position

ITEMS	AMT
CASH(59.3+24)	83,300
Accounts Receivable(144-12.8)	131,200
Inventory(84+130)	214,000
Land	101,000
Buildings & Equipment(663-59)	604,000
Less: Accumulated Depreciation	-225,000
goodwill(working note)	74,000
total assets	982,500
Accounts Payable(178,500-12,800)	165,700
Mortgage Payable	514,600
Common Stock	72,000
Retained Earnings	190,000
NCI	40,200
Total Liabilities & Stockholders’ Equity	982,500