Problem 4

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					Problem 4.1                              Name ___________Solution______________

        The Christopher Corporation paid $140,000 cash to acquire 70% of the Lowell
Corporation on January 1, 2006. On January 1, 2006 the Lowell Corporation's assets had
the following remaining useful lives: land = unlimited, buildings = 20 years, equipment =
10 years, and goodwill = indefinite. Immediately before the acquisition, the following
information was available.

                                     Christopher      Lowell          Lowell
                                     Corporation    Corporation     Corporation
              Accounts               Book Value     Book Value      Market Value
      Cash                             $152,000         $24,000          $24,000
      Accounts Receivable                 80,000         35,000            35,000
      Land                                45,000         18,000            27,000
      Buildings                           98,000         32,000            50,000
      Equipment                          200,000         54,000            74,000
      Accounts Payable                    60,000         48,000            48,000
      Common Stock, $1 par                70,000         19,000
      Additional Paid-in Capital         270,000         63,000
      Retained Earnings, 1/1/06          175,000         33,000

       For the year ended December 31, 2006 the Christopher Corporation reported net
income of $50,000 (not including equity in investee earnings) and paid cash dividends of
$20,000. For the year ended December 31, 2006 the Lowell Corporation reported net
income of $20,000 and paid cash dividends of $6,000. For the year ended December 31,
2007 the Lowell Corporation reported net income of $24,000 and paid cash dividends of
$7,000.

        On December 31, 2008 the following information was available. Note: This is
not the complete financial statement data for either company.

                                             Christopher       Lowell
                        Accounts             Corporation     Corporation
               Land                               45,000          18,000
               Buildings                          88,000          29,000
               Equipment                          80,000          22,000
               Accounts Payable                   75,000          61,000
               Common Stock, $1 par               70,000          19,000
               Additional Paid-in Capital        270,000          63,000
               Dividends                          21,000           8,000
               Revenues                       * 320,000          115,000
               Expenses                       * 260,000           85,000

* Christopher Corporation's revenues and expenses do not include any amounts related to
its investment in Lowell Corporation.
2

1. Assuming the Christopher Corporation uses the equity method and the parent
   company concept to account for its investment in the Lowell Corporation, determine
   the following.

    December 31, 2008 balance in the Investment in Lowell Corporation account in the
    Christopher Corporation's general ledger. $171,010

          Lowell acquisition         Total  Amortization   70%    Amortization
    Implied value ($140,000 / .70) $200,000              $140,000
    Less: Lowell book value        $115,000               $80,500
    Excess                          $85,000               $59,500

    Land                              $9,000              $0     $6,300                $0
    Buildings (20-year life)         $18,000            $900    $12,600              $630
    Equipment (10-year life)         $20,000          $2,000    $14,000            $1,400
    Goodwill (indefinite life)       $38,000              $0    $26,600                $0
    Totals                           $85,000          $2,900    $59,500            $2,030

                      Investment in Lowell Corp.                    Eq. in Investee Earn.
    1/1/06                140,000
    NI 20,000 x. .7         14,000                                                  14,000
                                       4,200 D 6,000 x .7
                                       2,030 Amortization              2,030
    12/31/06              147,770                                                   11,970

    NI 24,000 x .7         16,800                                                   16,800
                                       4,900 D 7,000 x .7
                                       2,030 Amortization              2,030
    12/31/07              157,640                                                   14,770

    NI 30,000 x .7         21,000                                                   21,000
                                       5,600 D 8,000 x .7
                                       2,030 Amortization              2,030
    12/31/08              171,010                                                   18,970

    Equity in Investee Earnings reported on the Christopher Corporation's parent
    company income statement for the year ended December 31, 2008. $18,970

    Net income reported on the Christopher Corporation's consolidated income statement
    for the year ended December 31, 2008. $78,970

    Christopher Corp. revenues - expenses $60,000
    Equity in investee earnings           $18,970
    Consolidated net income               $78,970
                                                                                      3

   Noncontrolling interest reported on the Christopher Corporation's December 31, 2008
   consolidated balance sheet. $50,400

   Lowell Corp. book value, 1/1/06          $115,000
   Lowell Corp. 2006 net income - dividends $14,000
   Lowell Corp. 2007 net income - dividends $17,000
   Lowell Corp. 2008 net income - dividends $22,000
   Lowell Corp. book value, 12/31/08        $168,000

   Noncontrolling interest (30%)                 $50,400

   Land reported on the Christopher Corporation's December 31, 2008 consolidated
   balance sheet. $69,300

   Christopher     Lowell                        PC 70%     2006-2008    12/31/08
   Corporation   Corporation       Total        Allocation Amortization Consolidated
       $45,000      $18,000        $63,000          $6,300           $0     $69,300

   Buildings reported on the Christopher Corporation's December 31, 2008 consolidated
   balance sheet. $127,710

   Christopher     Lowell                        PC 70%     2006-2008    12/31/08
   Corporation   Corporation        Total       Allocation Amortization Consolidated
      $88,000       $29,000        $117,000        $12,600     ($1,890)    $127,710

   Equipment reported on the Christopher Corporation's December 31, 2008
   consolidated balance sheet. $111,800

   Christopher     Lowell                        PC 70%     2006-2008    12/31/08
   Corporation   Corporation        Total       Allocation Amortization Consolidated
      $80,000       $22,000        $102,000        $14,000     ($4,200)    $111,800

   Goodwill reported on the Christopher Corporation's December 31, 2008 consolidated
   balance sheet. $26,600

   Christopher      Lowell                       PC 70%     2006-2008    12/31/08
   Corporation    Corporation      Total        Allocation Amortization Consolidated
            $0             $0              $0      $26,600           $0     $26,600


2. Assuming the Christopher Corporation uses the equity method and the economic unit
   concept to account for its investment in the Lowell Corporation, determine the
   following.

   December 31, 2008 balance in the Investment in Lowell Corporation account in the
   Christopher Corporation's general ledger. $171,010
4



    Equity in Investee Earnings reported on the Christopher Corporation's parent
    company income statement for the year ended December 31, 2008. $18,970

    Net income reported on the Christopher Corporation's consolidated income statement
    for the year ended December 31, 2008. $78,970

    Christopher Corp. revenues – expenses               $60,000
    Lowell Corp. revenues – expenses                    $30,000
    Total amortization                                  ($2,900)
    Noncontrolling interests [($30,000 - $2,900) x .30]   $8,130
    Consolidated net income                             $78,970

    Noncontrolling interest reported on the Christopher Corporation's December 31, 2008
    consolidated balance sheet. $73,290

    Lowell Corp. book value, 1/1/06                         $115,000
    Lowell Corp. 2006 net income – dividends                 $14,000
    Lowell Corp. 2007 net income – dividends                 $17,000
    Lowell Corp. 2008 net income – dividends                 $22,000
    Lowell Corp. book value, 12/31/08                       $168,000
    Total excess allocation                                  $85,000
    Less: Total amortization ($2,900 x 3 years)              ($8,700)
    Lowell Corp. "consolidated" book value                  $244,300

    Noncontrolling interest (30%)                            $73,290

    Check:
    Economic unit noncontrolling interest                    $73,290
    Parent company noncontrolling interest                   $50,400
    Noncontrolling interest difference                       $22,890

    Total allocation - total 3-year amortization             $76,300
    Parent company allocation - total 3-year amortization    $53,410
    Allocation difference                                    $22,890
                                                                                        5

   Land reported on the Christopher Corporation's December 31, 2008 consolidated
   balance sheet. $72,000

   Christopher      Lowell                      EU 100%     2006-2008    12/31/08
   Corporation    Corporation      Total        Allocation Amortization Consolidated
       $45,000       $18,000       $63,000          $9,000           $0     $72,000

   Buildings reported on the Christopher Corporation's December 31, 2008 consolidated
   balance sheet. $132,300

   Christopher      Lowell                      EU 100%     2006-2008    12/31/08
   Corporation    Corporation      Total        Allocation Amortization Consolidated
      $88,000        $29,000      $117,000         $18,000     ($2,700)    $132,300

   Equipment reported on the Christopher Corporation's December 31, 2008
   consolidated balance sheet. $116,000

   Christopher      Lowell                      EU 100%     2006-2008    12/31/08
   Corporation    Corporation      Total        Allocation Amortization Consolidated
      $80,000        $22,000      $102,000         $20,000     ($6,000)    $116,000

   Goodwill reported on the Christopher Corporation's December 31, 2008 consolidated
   balance sheet. $38,000

   Christopher      Lowell                       PC 70%     2006-2008    12/31/08
   Corporation    Corporation      Total        Allocation Amortization Consolidated
            $0             $0              $0      $38,000           $0     $38,000


3. Using the information on page 1, change the date of acquisition to October 1, 2006
   and assume the book values and market values on page 1 are as of October 1, 2006.
   The Lowell Corporation generated net income fairly evenly during 2006. Assuming
   the Christopher Corporation uses the equity method and the parent company concept
   to account for its investment in the Lowell Corporation, determine the following.

   Noncontrolling interest reported on the Christopher Corporation's consolidated
   income statement for the year ended December 31, 2006. $6,000

                                                               Christopher    NCI
                                                   Total       Corp. 70%     30%
   Lowell Corp. 2006 net income                  $20,000.00     $14,000.00 $6,000.00
   Preacquisition income (9/12)                               ($10,500.00)
   Amortization for 3 months ($2,130 x 3/12)                     ($507.50)
   Equity in Investee Earnings                                   $2,992.50
6

    Preacquisition income reported on the Christopher Corporation's consolidated income
    statement for the year ended December 2006. $10,500

    Net income reported on the Christopher Corporation's consolidated income statement
    for the year ended December 31, 2006. $52,992.50

    Christopher Corp. revenues - expenses $50,000.00
    Equity in investee earnings            $2,992.50
    Consolidated net income               $52,992.50

				
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