Question

35. Alon Company acquired 100 percent of Bradford Company's voting stock on January 1, 2017, by issuing 10,000 shares of $10 par value common stock (having a fair value of $14 per share). As of that date, Bradford had stockholders' equity totaling $105,000. Land shown on Bradford's accounting records was undervalued by $10.000. Equipment (with a five year remaining life) was undervalued by $5,000. A secret formula developed by Bradford was appraised at $20,000 with an estimated We of 20 years. The following are the separate financial statements for the two companies for the year ending December 31, 2021 There were no intra-entity payables on that date Credit balances are indicated by parentheses Allen Bradford Company Company Revenues $ 485,000) $(190,000) Cost of goods sold 150,000 70.000 Depreciation expense 130.000 52.000 Subsidiary earnings (66000) Net income $261000) $.(68000) Retained earnings, 1/1/21 $ (659.000) $(98.000) Not income (above) (261.000) (68,000) Dividends declared 175.500 40.000 Retained earnings, 12/31/21 $144,500 $(126,000) Current assets $268.000 $ 75,000 Investment in Bradford Company 216,000 -0- Land 427,500 58,000 Buildings and equipment (net) 713,000 161,000 Total assets $1,624 509 $294.000 Current liabilities S (190,000) $[103,000) (600,000 (60,000) Common stock (90,000) Additional paid in capital (5,000) Retained earnings, 12/31/21 (126.000) Totallabies and equity $(1.624,500) $(294.000) a Explain how Alen derived the $66.000 balance in the Subsidiary Earnings account b. Prepare a worksheet to consolidate the financial information for these two companies

Journal entries

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Answer 1

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140,000 105,000 35,000 10,000 5,000 20,000 Computation of Goodwill (if any) Fair value of consideration transferred (10000*$14) $ Less : Book value of Sco. $ Excess Fair Value over book $ Allocated to Land $ Allocated to Equipment $ Allocated to Secret formula $ Goodwill S Allocation of excess value to specified assets Initial value Assets (A) Land $ 10,000 Equipment $ 5,000 Secret formula $ 20,000 Journal Entries Consolidation Entry S Common Stock Paid in Capital Retained earnings (beginning) Equity in subsidiary earnings Land Equipment Formula $ $ $ $ $ $ $ 60,000 5,000 98,000 66,000 10,000 1,000 16,000 Life $ 256,000 Amortization per year (A/B) 0 $ 5 $ 1,000 20 $ 1,000 Investment in Bradford company (Eliminate subsidiary equity) Consolidation Entry A S 35,000 $ 2,000 Goodwill($35,000 - $35,000) $ Land Equipment Formula Investment in Bradford company (Allocate subsidiary acquisition date fair $ $ $ 10,000 1,000 16,000 $ 27,000 Analysis of Subsidiary earnings Bradford company Net Income $ Less :Additional equipment depreciation ($5000/5) $ 68,000 1,000 Less :Additional formula depreciation ($20000/20) $ Equity in subsidiary earnings on parents books $ 1,000 66,000 $ 66,000 Consolidation Entry Equity in subsidiary earnings Investment in Bradford company (Eliminate equity income) $ 66,000 $ 40,000 Consolidation Entry D Investment in Bradford company Dividend Paid (Eliminate intercompany dividend) $ 40,000 $ $ 1,000 1,000 Consolidation Entry E Depreciation Expense - Equipment Amortization Expense - Formula Formula Equipment (Recognize current year excess fair value expenses) $ $ 1,000 1,000 Consolidated worksheet Consolidation Entries Debit Credit Consolidation Total Allen co Bradford co $ $ $ $ $ $ -485,000 $ 190,000 160,000 $ 70,000 130,000 $ 52,000E $ E -66,000 $ 1 -261,000 $ -68,000 -675,000 230,000 183,000 1,000 $ $ $ $ $ $ $ $ $ 1,000 1,000 66,000 -261,000 Accounts Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity in subsidiary earnings Net Income Statement of Retained earnings Retained earnings 1/1 Net income (above) Dividend paid Retained earnings 12/31 Balance Sheet Current assets Investment in Bradford Co $ 98,000 $ $ $ $ -659,000 $ -261,000 $ 175,500 $ -744,500 $ -98,000S -68,000 40,000 -126,000 $ $ $ $ -659,000 -261,000 175,500 -744,500 40000 D 75,000 343,000 $ $ 268,000 $ 216,000 $ D $ 40,000 $ 256,000 S $ $ $ $ $ $ Land Building and equipment(net) Formula $ $ $ 427,500 $ 713,000 $ $ 58,000 A 161,000 A А $ $ $ 10,000 1,000 $ 16,000 $ 1,000E 1,000E 495,500 874,000 15,000 Total Assets Current Laibilities Long term Liabilities Common stock Additional paid in capital Retained earnings (above) Total liabilities and equity $ 1,624,500 $ 294,000 $ -110,000 $ -19,000 $ -80,000 $ -84,000 $ -600,000 $ -60,000 S $ -90,000 $ -5,000 S $ -744,500 $ -126,000 $ -1,624,500 $ -294,000 $ $ 60,000 5,000 $ 1,727,500 $ -129,000 $ -164,000 $ -600,000 $ -90,000 $ -744,500 $ -1,727,500 $ 298,000