1) Plant Inc. a calendar year reporting company acquired 80% of Seed Inc.’s outstanding common stock for $ 484,000 on Dec. 31, 2018, when the fair value of Seed’s Net Assets was $ 568,000. The following data summarize the fair value calculation: (2 Marks)
Book Value Element Amount $ Life Remaining
Common Stock 150,000
Retained Earnings 135,000
Under –Or-Over Valuation
Inventory (9700) 2 Months
Land 48,000 Indefinite
Equipment 96,000 8 Years
Covenant –Not-To Compete 40,000 5 Years
Goodwill Element 108,700 Indefinite
Total Cost 568,000
Plant Inc. & Seed Inc.
Worksheet
As at Dec. 31, 2018
Balance Sheet Plant ($) Seed ($)
Cash 148,000 47,000
Account Receivable 103,500 118,000
Inventory 152,500 126,000
Investment in Seed -
Book Value 228,000
Excess Cost 226,400
Land 168,000 127,000
Building & Equipment 400,000 309,000
Accumulated Depreciation -16,000 -102,000
Total Assets 1,410,400 625,000
Payable & Accruals 265,400 120,000
Long Term Assets 290,000 220,000
Common Stock 450,000 150,000
Retained Earnings 405,000 135,000
Total Liabilities & Equity 1,410,400 625,000
You are required to
(a) Prepare an Analysis of the Investment Account Through Dec. 31, 2018. Show clearly Book Value and Excess Value calculation by preparing tables.
(b) Prepare all consolidation (Elimination Entries) as of Dec. 31, 2018.
(c) Prepare a Consolidated Worksheet as at Dec. 31, 2018.
2) The following intercompany transactions occurred during the year:
(1.5 Marks)
• Parent loaned $12500 to Sub. To keep things simple, assume that there is no interest revenue or interest expense associated with this loan.
• Parent made a sale to Sub for $13000 cash. The inventory had originally cost Parent $12220. Sub then sold that same inventory to an outsider for $14000.
• Parent made a sale to Sub for $15000 cash. The inventory had originally cost Parent $11280. Sub has not yet sold that same inventory to an outsider. (Don’t forget equity method entry!)
Based on our “conceptual discussion,†what consolidation worksheet entries would you make?
3) Peter Corp. purchased a machine on Jan 1, 2011 for $ 120,000 and estimated that the machine would have a useful life of 10 years with no salvage value. After two years, on Dec. 31, 2012, Peter corp. sold the machine to its 100 % owned subsidiary, Sonu Co. for $ 100,000. Sonu Co. estimated that the asset had a remaining useful life of five years.
What is the amount of the gain or loss recorded by Peter Corp. at the time of the fixed transfer? What balance would have existed if the transfer had not taken place?
Show the worksheet entry on Dec. 31, 2012 to eliminate the asset transfer to make adjustment to change form ‘Actual’ to ‘As If’ the asset hadn’t been transferred.