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Business Combinations




Business Combinations;Adam Company acquired 90% of the outstanding common stock of;Saul Company on June 30, 2011 for $425,700. On that date, the fair value of;the non-controlling interest was $47,300.;On the acquisition date, Saul Company;had retained earnings in the amount of $60,000, and the fair value of its;recorded assets and liabilities was equal to their book value. The excess of;cost over the fair value of the recorded net assets was attributed to;an unrecorded manufacturing formula held by Saul Company, which;had an expected remaining useful life of five years from June 30, 2011.;On December 31, 2011, Adam company sold equipment (with an;original cost of $200,000 and accumulated depreciation of $50,000);to Saul Company for $175,000. This equipment has since been;depreciated at an annual rate of 20% of the purchase price.;During 2012, Saul Company sold land to Adam Company at a;profit of $30,000. Adam still holds the land acquired from Saul.;The inventory of Adam Company on December 31, 2012 included goods;purchased from Saul Company on which Saul recognized a profit;of $7,500.;During 2013, Saul Company sold goods to Adam Company for;$375,000, of which $60,000 was unpaid at December 31, 2013. The;December 31, 2013 inventory of Paul Company included goods acquired;from Saul Company on which Saul recognized a profit of $10,500.;During 2013 Adam Company sold goods to Saul Company for $600,000;at a markup on sales of 20%. At December 31, 2013, 30% of these goods;remain unsold by Saul Company. Saul Companystill owes Adam;Company $180,000 for these inventory purchases.;On January 1, 2013 Saul Company reports $600,000 in bonds outstanding with;a book value of $564,000. Adam purchases half of these bonds on the open;market for $291,000. Attribute the income effects of this transaction to the parent company.;Required: Carefully Follow and label each step.;1. Prepare the acquisition analysis as of acquisition date. Compute the;unamortized differential as of 1/1/2013.;2. Analyze each intercompany transaction. Label as either upstream;downstream.;3. Calculate Net income to the controlling interest for the year 2013;4. Verify the calculation of the balance in the acccount equity in sub;earnings and record the parent company entries with respect to its investment during 2013;5. Prepare all elimination entries for 2013.;6. Complete the consolidating spreadsheet for the year ended 2013.


Paper#28728 | Written in 18-Jul-2015

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