Question

1: 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^st2010;

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

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

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

Answer 1

· From the acquisition value $28,000 was allocated based on the fair value of the building. So the amortization amount will be $2,800 per year with a ten-year remaining life. Out of this $1,960 is attributed to controlling interest.

· Copyright amortization would have been $4,000 per year of which $2,800 is attributed to controlling interest.

· Goodwill: Vacker paid $6,50,000 which includes $20,000 premium .

· Thus 6,30,000 reperesent 70% of the shares without the premium.

· 30%*900,000=270,000.

· The total fair value of the company is thus 6,50,000 that vacker paid +270,000 value of the non-controlling interest shares=920,000.

· The fair value of the net asset acquired is 780,000(=672,000+28,000+80,000).

· Goodwill attributable to Vacker is 104,000(=650,000-[70%*780,000]) and the goodwill attributable to the non-controlling interest is 36,000(=270,000-[30%*780,000])

Entry S

Common Stock-carper Inc                      4,20,000

Retained earnings,1/1/20 carp inc            3,75,200

Investment in Carper Inc(70%)                                               5,56,640

Non-controlling Interest in carper inc                                      2,38,560

Entry A

Buliding(less 2yrs depre)                        22,400

Copyright(less 2yrs depre)                      72,000

Goodwilll                                                                                1,40,000

Investment in Carper Inc                                                         1,70,080

Non-controlling Interest in carper inc                                      64,320

Entry 1

Equity in subsidiary earnings                  1,03,040

Investment in Carper Inc                                                         1,03,040

The 70% of sub’s income less controlling interest share of amortization and depreciation (70%*154000-[2800*70%]-[4000*70%]=$103,400

Entry D

Investment in Carper Inc                         58,800

Dividends paid                                                                        58,800

Entry E

Depreciation expense                                              2,800

Amortization Expense                                             4,000

Buildings                                                                                 2,800

Copyright                                                                                4,000

Entry P

Accounts Payable                                    30,800

Accounts Receivable                                                               30,800

Non-controlling Interest Items:

Dividends                                                (25,200)

Income of Carper                                      44,160

Beginning NCI=$270,000+$29,460(Income)-$16,380(dividends)+$38,280(income)-$18,480(dividend)=$3,02,880