Question

Problem1: On January 1, 2009, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000 control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000. A building was undervalued in the company's financial records by $28,000. This building had a ten-year remaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years.
Carper earned income and paid cash dividends as follows:

	NI	Div Paid
2009	$105,000	$54,600
2010	$134,400	$61,600
2011	$154,000	$84,000

On December 31, 2011, Vacker owed $30,800 to Carper. There have been no changes in Carper's common stock account since the acquisition.

1. Show the acquisition date FV allocation, which includes detailed steps such as allocation to BV, FV over BV, and Goodwill allocation, between controlling and noncontrolling interests.

2. Calculate the following amounts for individual accounts:

the balance of investment in Carper on Vacker’s book on Dec 31^st 2010;

noncontrolling interest on consolidated financial statement on Dec 31^st, 2010);

and the balance of noncontrolling interest on Dec 31^st 2011.

3. List all necessary consolidation entries as of December 31, 2011?

Answer 1

1. Show the acquisition date FV allocation, which includes detailed steps such as allocation to BV, FV over BV, and Goodwill allocation, between controlling and noncontrolling interests.
From the acquisition value, $28,000 was allocated based on the fair value of the building and will be amortized Within a ten-year remaining life; while Copyrights of $80,000 were to be recognized and amortized over 20 years.
	Hence Amortization		controlling interest (70%)	Non-controlling interest (30%)
	A	B	C =B X 70%	D= B X 30%
	Building	= $28,000 /10 years
		$                   2,800	$                  1,960	$                       840
	Copy Right	=$80,000 / 20 years
		$                   4,000	$                  2,800	$                   1,200
GoodWill
	Fair Value of the net asset acquired
	common stock	$              420,000
	retained earnings	$              252,000
	building	$                 28,000
	Copyrights	$                 80,000
	(A)	$              780,000
	Less		* Vacker paid $650,000 which includes $20,000 premium
	Non controlling interest * (9000000* 30%)	$              270,000	Amt without premium	= 650000-20000
	controlling interest	$              650,000	$               630,000
	(B)	$              920,000	Value of company	= 630000/70%
	Goodwill (A-B)	$              140,000	$               900,000
	Goodwill attributable to Vacker - 70%	= $650,000 – [70% × $780,000]
	$104,000
	Goodwill attributable to non controlling interest - 30%	= $270,000 – [30% × $780,000]
	$36,000
2. Calculate the following amounts for individual accounts: noncontrolling interest on consolidated financial statement on Dec 31st, 2010); and the balance of noncontrolling interest on Dec 31st 2011.
noncontrolling interest on consolidated financial statement on Dec 31st, 2010
	Common Stock-Carper Inc.	420,000
	Retained Earnings (252,000+105000-54600+134400-61600)	375,200
	(A)	795,200
	(B)	30%
	C=(A) X (B)	238,560
balance of noncontrolling interest on Dec 31st 2011.
	as on 01-01-2009	270,000
	Income   (105000-2800-4000)*30%	29,460
	Div (54600*30%)	-16,380
	Income   (134400-2800-4000)*30%	38,280
	Div (61600*30%)	-18,480
	as on 01-01-2011	302,880
	Dividends (84000*30%)	-25,200
	Income of Carper (154000-2800-4000) *30%	44,160
	balance of noncontrolling interest on Dec 31st 2011.	321,840

3. List all necessary consolidation entries as of December 31, 2011
		Dr	Cr
	Entry S
	Common Stock-Carper Inc.	420,000
	Retained Earnings, 1/1/11- Carper Inc. (252,000+105000-54600+134400-61600)	375,200
	Investment in Carper Inc. (70%)		556,640
	Noncontrolling Interest in Carper Inc., 1/1/11   ((420000+375200) x 30%)		238,560
	Entry A
	Building (28,000 less 2 yrs. Deprn.)	22,400
	Copyright (80,000 less 2 yrs. Amort.)	72,000
	Goodwill	140,000
	Investment in Carper Inc. (22400+72000)*70% + 104000		170,080
	Noncontrolling Interest (22400+72000)*30% + 36000		64,320
	Entry I
	Equity in Subsidiary Earnings	103,040
	Investment in Carper Inc.		103,040
	(The 70% of sub’s income less controlling interest share of amortization and depreciation(70%*154,000)-[(2800*70%)]-[(4000*70%)=$103,400.00)
	Entry D
	Investment in Carper Inc.	58,800
	Dividends Paid (84000*70%)		58,800
	Entry E
	Depreciation Expense	2,800
	Amortization Expense	4,000
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