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4. On January 1, 2009, R Corp. issued shares of its common stock to acquire all...


4. On January 1, 2009, R Corp. issued shares of its common stock to acquire all of the outstanding common stock of S Inc. Ss
4. On January 1, 2009, R Corp. issued shares of its common stock to acquire all of the outstanding common stock of S Inc. S's book value was only $180,000 at the time, but R issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. R was willing to convey these shares because it felt that buildings (10-year life) were undervalued on Ss records by $60,000 while equipment (five-year life) was undervalued by $25,000. Any consideration transferred over fair value of identified net assets acquired is assigned to goodwill. The Trial Balances for Rand S as of December 31, 2012 are presented below: Revenues Expenses Equity in subsidiary earnings Net income Rand Corp $ 372.000 (264,000) 25,000 $ 133.000 Spaulding Inc $108.000 (72.000 0 S 36.000 Retained earnings, January 1, 2012 Net income (above) Dividends pard Retained earnings December 31, 2012 $ 765.000 $102.000 133.000 36,000 (84.000 (24.000) S S14.000 SI14.000 Current assets Investment in Spaulding Ine Buildings (net Equipment (net) Total assets $ 150,000 242.000 525.000 389,250 S1306250 $ 22.000 0 85.000 129.000 $236.000 0 Liabilities $ $2.250 $ 50.000 Common stock 360.000 72.000 Additional paid-in capital 50.000 Retained earnings. December 31, 2012 (above) S14,000 117.000 Total liabilities and stockholders' equity $1.306.250 $236.000 Required: Prepare the December 31, 2012 consolidation entries for this business combination assuming the parent uses the: a. Equity method b. What C entry will be on the 2013 consolidation worksheet if R Corp uses the Partial'equity method to account for this investment; the initial value method?
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ReportAnswer #1
Adjustment entries
Rand Corp Spaulding Inc Debit Credit Consolidation
Revenue 372000 108000 480000
Expense -264000 -72000 -11000 -347000
Equity in subsidiary earnings 25000 25000 0
Net income 133000 36000 133000
Retained reanings 765000 102000 102000 765000
Net income 133000 36000 36000 133000
Dividends paid -84000 -24000 24000 -84000
Retained earnings, Dec 2012 814000 114000 814000
Current Asstes 150000 22000 172000
Investment in Spaulding Inc 242000 0 242000 0
Building net 525000 85000 6000 604000
Equipment net 389250 129000 5000 513250
Goodwill 67000 67000
Total assets 1306250 236000 1356250
Liabilities 82250 50000 132250
Common Stock 360000 72000 -72000 360000
Additional paid in capital 50000 0 50000
Retained earnings 814000 114000 -102000 814000
Total liabilities and stock holders' equity 1306250 236000 1356250
Consolidation entries
Excess depreciation on building =60000/10
6000
excess depreciation on equipment =25000/5
5000
Net income 36000
Dividends 24000
Investment in spaulding 25000
To equity in subsidiary earnings 25000
Cash 24000
To Investment in spaulding 24000

consolidation entries

Equity in subsidiary 25000
To investment in subsidiary 1000
To dividend paid 24000
Common stock 72000
retained earnings beginning 102000
Difference (cost & book) 67000
To investment in subsidiary 241000
Goodwill 67000
To Difference in (cost & book) 67000
Depreciation 11000
To Land 6000
To equipment 5000

Under partial equity method the excess of amortisatiob/depreciation is not taken into consideration, only adjustments related to net income and dividends are done

Hence,assuming profit, investment in subsidiary and dividends remain same

Equity in subsidiary 36000
To investment in subsidiary 12000
To dividend paid 24000
Common stock 72000
retained earnings beginning 114000
Difference (cost & book) 44000
To investment in subsidiary 230000
Goodwill 44000
To Difference in (cost & book) 44000
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