P5_12 December 31, Year 7 Sub issued

Parent Sub
Grant Devy FMV Jan 1, YR 4

Cash $ 2,500 $ 9,000 Step 1: Consideration

AR $ 92,500 $ 41,000 Total value of company
Inventory $ 155,000 $ 50,000
Investment in D $ 35,000 Step 2: Common shares
Equipment $ 115,000 $ 102,500 Retained earnings
Patent $ 1,000
TotalA $ 400,000 $ 203,500
Step 3:
AP $ 95,000 $ 97,500
Other accrued L $ 30,000 $ 25,000 Step 4: Table 1 (from net identifiable assets)
Tax payable $ 40,000 $ 36,000
Common shares $ 85,000 $ 12,500 Table 1: CV FV
RE $ 150,000 $ 32,500 Inventory $ 25,000 $ 27,500
$ 400,000 $ 203,500 Patent $ 5,000 $ 10,000

Income Statement Parent Sub

December 31, Year 7 Grant Devy Step 5: goodwill

Revenues $ 450,000 $ 180,000

COGS $ 170,000 $ 120,000 Step 6: NCI
GM $ 280,000 $ 60,000
Distribution expense $ 15,000 $ 12,500 Table 2: Jan 1 Yr 4
Other exp $ 90,000 $ 28,000 Items Diff
Tax expense $ 60,000 $ 8,000 Sold year 4 Inventory $ 2,500
$ 115,000 $ 11,500 5 years Patent $ 5,000
Totals $ 7,500
Goodwill $ 7,000
expenses ( x )
income y
CONSOLIDATED INCOME STATEMENT
For year 7 Grant Devy
GL GL Table 2 adj. Consolidated
Revenues $ 450,000 $ 180,000 $ 630,000
COGS $ 170,000 $ 120,000 $ 290,000
GM $ 280,000 $ 60,000 $ 340,000 PROFIT
Distribution expense $ 15,000 $ 12,500 $ 1,000 $ 28,500
Other exp $ 90,000 $ 28,000 $ 2,000 $ 120,000
Tax expense $ 60,000 $ 8,000 $ 68,000
$ 115,000 $ 11,500 $ 123,500 Consolidated net income

98% $ 121,400 Attributed to Parent

2% $2,100 Attributed to NCI
For parent For NCI
Step 1:
Parent's net income 100% $ 115,000 Parent's net income 0%
Plus adjustments Plus adjustments

Step2: sub's net income (80%) $ 9,200 Step2: sub's net income (20%)
Plus adjustments Plus adjustments

Step 3: current year amortization (parent) 80% Step 3: current year amortization (NCI) 20%
non GW $ (800) non GW
GW loss $ (2,000) GW loss
$ 121,400

Dec 31, YR 7 Given

Parent Sub
Grant Devy Consolidated Calculate RE (parents)

Cash $ 2,500 $ 9,000 $ 11,500 Step 1:

AR $ 92,500 $ 41,000 -15000 $ 118,500 100% of parent's RE
Inventory $ 155,000 $ 50,000 $ 205,000
Investment in D $ 35,000 $ (35,000) $ -
Equipment $ 115,000 $ 102,500 $ 217,500 Step2: (delta) = 80% of chang
Patent $ 1,000 $ 1,000 $ 2,000
Goodwill $ 5,000 $ 5,000 Less:
TotalA $ 400,000 $ 203,500 $ 559,500

AP $ 95,000 $
97,500 -15000 $ 177,500
Other accrued L $ 30,000 $
25,000 $ 55,000 Step3: YTD amortization Of A
Tax payable $ 40,000 $
36,000 $ 76,000
Common shares $ 85,000 $
12,500 $ (12,500) $ 85,000
RE $ 150,000 $
32,500 $ 156,800 calculated
NCI $ 9,200 calculatedTotal
$ 400,000 $ 203,500 $ 559,500
 5000 4,000 1,000 20% x 5,000
80% 20%
Parent NCI Total
$7
$ 35,000 $ 7,000
f company $ 42,000

$ 12,500
$ 15,000
$ 27,500 $ 22,000 $ 5,500 $ 27,500

$ 13,000 $ 1,500 $ 14,500 math

(step 1 - step 2)
m net identifiable assets)
(FMV - CV)
Diff
$ 2,500
$ 5,000
$ 7,500 $ 6,000.0 $ 1,500.0 $ 7,500.0

$ 7,000.0 $ - $ 7,000.0 math

100% 0% (step 3 - step 4)

$ 7,000
R/E I/stmt B/Sheet
Years 4, 5, 6 YR 7 Dec 31, YR 7

$ (2,500) $ - $ -
$ (3,000) $ (1,000) $ 1,000
$ (5,500) $ (1,000) $ 1,000
$ (2,000) $ 5,000 given
FVE modified, and INA
FVE implied

d net income
 $0

$ 2,300

tization (NCI) 20%

$ (200)
$0 0% on acquisition, so no GW impairment
$2,100

Calculate RE (parents)

00% of parent's RE $ 150,000 100%

Plus adjustments

Step2: (delta) = 80% of change

RE on Dec 31, YR7 $ 32,500
RE date acq Jan 1 Yr 4 $ 15,000
$ 17,500 $ 14,000.0 80%
Plus adjustments

Step3: YTD amortization Of AD (parents)

non GW ($6,500) 80% $ (5,200)
GW -2000 100% $ (2,000)

$ 156,800.0

NCI
Step1: Book valueof Sub
CS Dec 31 Yr7 $ 12,500
RE Dec 31 Yr 7 $ 32,500
$ 45,000 $ 9,000.0 20%
Step2:
From FV Table 2, what is left?
non GW $ 1,000 $ 200.0 20%
GW 5000 0%

Total $ 9,200.0
 GL
asset 5 years
Patent CV $ 5,000 $ 1,000 amortization exp of $1,000

Year 4 1k
$ 10,000 $ 2,000
$ 5,000
Year 5 1k
Year 6 1k
Year 7 1k
Year 8 1k
P5_17 = implied method or direct We are told that purchase was July 1, Yr 4
80% for $543,840
Aaron Bondi Company is using the equity method for book
Parent Sub FVE implied
Dec 31, Yr 6 Dec 31, Yr 6 Step 1 Consideration paid
PPE $ 720,000 $ 540,000 Value (FMV) of 100%
Investment in B $ 520,319 Step 2 BV of what getting
Other Invest $ 250,666 CS
Inventory $ 300,000 $ 276,000 RE
AR $ 180,000 $ 114,000
Cash $ 120,000 $ 84,000 Step 3: FV differential (total)
$ 2,090,985 $ 1,014,000

Shares $ 300,600 $ 120,000 Step 4: Table 1

RE $ 1,295,185 $ 558,200 PPE
Bonds Payable $ 315,000 $ 200,000 Inventory
Current L $ 180,200 $ 135,800 AR
$ 2,090,985 $ 1,014,000 Bonds

Yr 6 Yr 6 Step 4: total
Sales $ 1,261,000 $ 1,200,000
Equity income B $ 4,394 Step 5: Goodwill
Investment income othe $ 25,000
$ 1,290,394 $ 1,200,000 Step 6: NCI

Raw materials $ 880,000 $ 1,005,000 1.5 yrs (July 1)

Change in inventory $ (40,000) $ 15,000 Table 2 Diff
Depreciation $ 60,000 $ 54,000 15 yrs PPE $ (90,000)
Interest exp $ 37,000 $ 26,400 By Yr 5 Inventory $ 48,000
Other exp. $ 227,000 $ 91,200 Yr 4 AR $ 24,004
Total expenses $ 1,164,000 $ 1,191,600 table Bonds $ 13,466

Profit $ 126,394 $ 8,400 Goodwill $ 55,530

July 1, Yr 4
Dec 31, Yr 4
July 1, Yr 5
Dec 31, Yr 5
July 1, Yr 6
Dec 31, Yr 6
July 1, Yr 7
Dec 31, Yr 7
July 1, Yr 8
 Given Given
Yr 6 Yr 6 ADJ ADJ ADJ
Sales $ 1,261,000 $ 1,200,000
Equity income B $ 4,394 $ (4,394)
Investment income othe $ 25,000
$ 1,290,394 $ 1,200,000

Raw materials $ 880,000 $ 1,005,000

Change in inventory $ (40,000) $ 15,000
Depreciation $ 60,000 $ 54,000 $ (6,000)
Interest exp $ 37,000 $ 26,400 $ 3,353
Other exp. $ 227,000 $ 91,200
Impairment losses $ 5,553
Total expenses $ 1,164,000 $ 1,191,600

Profit $ 126,394 $ 8,400

For parent For NCI

Step 1:
Parent's net income 100% $ 126,394 Parent's net income 0%
Plus adjustments $ (4,394) Plus adjustments

Step2: sub's net income (80%) $ 6,720 Step2: sub's net income (20%)
Plus adjustments Plus adjustments

Step 3: current year amortization (parent) 80% Step 3: current year amortization (NCI) 20%
non GW $ 2,117 80%
GW loss $ (4,442) 80%

Total $ 126,395

Balance Sheet:
Table 2 Table 2
Given Given ADJ ADJ ADJ
Parent Sub
Dec 31, Yr 6 Dec 31, Yr 6
Goodwill $ 41,648
PPE $ 720,000 $ 540,000 $ (75,000)
Investment in B $ 520,319 $ (520,319)
Other Invest $ 250,666
Inventory $ 300,000 $ 276,000
AR $ 180,000 $ 114,000
Cash $ 120,000 $ 84,000
$ 2,090,985 $ 1,014,000

NCI
Shares $ 300,600 $ 120,000 $ (120,000)
RE $ 1,295,185 $ 558,200
Bonds Payable $ 315,000 $ 200,000 $ (5,551)
Current L $ 180,200 $ 135,800
$ 2,090,985 $ 1,014,000

Calculate RE (parents)

Step 1:
100% of parent's RE $ 1,295,185
Plus adjustments add back the loss $ 23,521
Note 1 b/c parent is using 'equity' method in its standalone FS (must adjust for the equity pickup)
Step2: (delta) = 80% of change
RE on Dec 31, YR6 $ 558,200
Less: RE date acq Jul 1 Yr 4 $ 508,800
$ 49,400 $ 39,520.0
Plus adjustments

Step3: YTD amortization Of AD (parents)

80% non GW $ (64,919) $ (51,935)
80% GW $ (13,882) $ (11,106)

$ 1,295,185

NCI
Step1: Book valueof Sub 20%
CS Dec 31 Yr6 $ 120,000
RE Dec 31 Yr 6 $ 558,200
$ 678,200 $ 135,640
Step2:
From FV Table 2, what is left?
non GW $ (69,449) 20% $ (13,890)
GW $ 41,648 20% $ 8,330

Total total $ 130,080

at purchase was July 1, Yr 4

ing the equity method for books

ideration paid $ 543,840

e (FMV) of 100% $ 679,800
f what getting
$ 120,000
$ 508,800
$ 628,800 $ 628,800
ifferential (total) $ 51,000

FV - CV
CV FMV Diff
$ 540,000 $ 450,000 $ (90,000)
$ 180,000 $ 228,000 $ 48,000
$ 120,000 $ 144,004 $ 24,004 $ (17,996)
$ 200,000 $ 186,534 $ (13,466) $ (4,530)

identifiable net assets $ (4,530)

$ 55,530 step 3 - step 4

20% $ 135,960

1.5 yrs (July 1) I/stmt B/Sheet

4, 5 Yr 6 Dec 31 Yr 6
$ 9,000 $ 6,000 $ (75,000) credit to income
$ (48,000) $ - $ - expense
$ (24,004) $ - $ - expense
$ (4,562) $ (3,353) $ 5,551 expense
$ (67,566) $ 2,647 $ (69,449)
$ (8,329) $ (5,553) $ 41,648 expense
GL
coupon market
3% 4% Diff FV
$ 200,000 $ 186,534
$ 6,000 $ 7,461 $ 1,461 $ 187,995
$ 6,000 $ 7,520 $ 1,520 $ 189,515
$ 6,000 $ 7,581 $ 1,581 $ 191,096
$ 6,000 $ 7,644 $ 1,644 $ 192,740
$ 6,000 $ 7,710 $ 1,710 $ 194,449
$ 6,000 $ 7,778 $ 1,778 $ 196,227
$ 6,000 $ 7,849 $ 1,849 $ 198,076
$ 6,000 $ 7,923 $ 1,923 $ 199,999
 Consol
$ 2,461,000
$ -
$ 25,000
$ 2,486,000

$ 1,885,000
$ (25,000)
$ 108,000
$ 66,753
$ 318,200
$ 5,553
$ 2,358,506

$ 127,494 consolidated net income

$ 126,395 Att Parent

$ 1,099 Att NCI

$ -

t income (20%) $ 1,680

year amortization (NCI) 20%

non GW $ 529.32 20%
GW loss $ (1,110.60) 20%

$ 1,099

TOTAL

$ 41,648
$ 1,185,000
$ -
$ 250,666
$ 576,000
$ 294,000
$ 204,000
$ 2,551,314

$ 130,080 calculate
 $ 300,600
$ 1,295,185 calculate
$ 509,449
$ 316,000
$ 2,551,314

Note 1 Investment July 1, Yr 4 $ 543,840

e equity pickup) Investment Dec 31, Yr 6 $ 520,319
$ (23,521) LOSS

our portion is 80%

80% of both
80% of both