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Chapter 4

- Hill Corp acquired 80% of McGraw Ltd for $328,000 implying a 100% value of $410,000 - McGraw had net assets of $299,000 resulting in an acquisition differential of $111,000 - The differential was allocated to inventory, land, and plant and equipment, with the remaining $78,500 allocated to goodwill - The consolidated balance sheet combines the assets and liabilities of Hill Corp and McGraw Ltd, including the amounts allocated from the acquisition

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108 views6 pages

Chapter 4

- Hill Corp acquired 80% of McGraw Ltd for $328,000 implying a 100% value of $410,000 - McGraw had net assets of $299,000 resulting in an acquisition differential of $111,000 - The differential was allocated to inventory, land, and plant and equipment, with the remaining $78,500 allocated to goodwill - The consolidated balance sheet combines the assets and liabilities of Hill Corp and McGraw Ltd, including the amounts allocated from the acquisition

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Problem 4-4

Cost of investment (288,000 + 40,000 for contingent consideration) $328,000


Implied value of 100% investment $410,000
Carrying amount of McGraw Ltd.’s net assets
Assets $728,000
Liabilities 390,000
338,000
Less: goodwill 39,000
299,000
Acquisition differential 111,000
Allocated: FV – CA
Inventory $6,500
Land 39,000
Plant and equipment (13,000) 32,500
Goodwill $78,500

Hill Corp.
Consolidated Balance Sheet
December 31, Year 4
Cash (13,000 + 6,500) $19,500
Accounts receivable (181,300 + 45,500) 226,800
Inventory (117,000 + 208,000 + 6,500) 331,500
Land (91,000 + 52,000 + 39,000) 182,000
Plant and equipment (468,000 + 377,000 - 13,000) 832,000
Goodwill (117,000 + 0 + 78,500) 195,500
$1,787,300

Current liabilities (156,000 + 104,000) $260,000


Contingent consideration payable 40,000
Long-term debt (416,000 + 286,000) 702,000
Common shares 520,000
Retained earnings 183,300
Non-controlling interest (20% x $410,000) 82,000
$1,787,300
Prob 4-7 Part a) iii & iv
(iii) Parent company extension theory

Cost of 80% investment $6,960

Implied value of 100% investment (6,960/.8) $8,700

Carrying amount of S Company’s net assets


Assets $13,500
Liabilities 4,500
9,000
Acquisition differential (300)
Allocated: FV – CA
Inventory 150
Plant and equipment (900) (750)
Goodwill in total $450

Parent’s share of S Company’s goodwill (80%) $360

Non-controlling interest
Total value of S Company $8,700
Less: goodwill (450)
Fair value of net assets of S Company 8,250
NCI’s % 20%
NCI $1,650

P Company
Consolidated Statement of financial position
December 31, Year 1

Cash (1,500 + 1,050) $2,550


Accounts receivable (3,150 + 1,800) 4,950
Inventory (5,160 + 3,750 + 150) 9,060
Plant and equipment (8,100 + 6,900 –900) 14,100
Goodwill 360
$31,020

Accounts payable (600 + 700) $1,300


Other current liabilities (1,200 + 1,800) 3,000
Long-term liabilities (4,200 + 2,000) 6,200
Total liabilities 10,500
Shareholders' equity
Ordinary shares $10,500
Retained earnings 8,370
Non-controlling interest 1,650 20,520
$31,020

(iv) Entity theory

Cost of 80% investment $6,960

Implied cost of 100% investment (6960/.8) $8,700

Carrying amount of S Company


Carrying amount of S Company’s net assets
Assets $13,500
Liabilities 4,500
9,000
Acquisition differential (300)
Allocated: FV – CA
Inventory $150
Plant and equipment 900) (750)
Goodwill in total $ 450

Non-controlling interest
Total value of S Company $8,700
NCI @20% $1,740
P Company
Consolidated Statement of financial position
December 31, Year 1

Cash (1,500 + 1,050) $2,550


Accounts receivable (3,150 + 1,800) 4,950
Inventory (5,160 + 3,750 + 150) 9,060
Plant and equipment (8,100 + 6,900 –900) 14,100
Goodwill 450
$31,110

Accounts payable (600 + 700) $1,300


Other current liabilities (1,200 + 1,800) 3,000
Long-term liabilities (4,200 + 2,000) 6,200
Total liabilities 10,500
Shareholders' equity
Ordinary shares $10,500
Retained earnings 8,370
Non-controlling interest 1,740 20,610
$31,110
Problem 4-10

(a)
Cost of 90% of Donna $351,000
Implied value of 100% of Donna $390,000
Carrying amount of Donna’s net assets
Assets $281,600
Liabilities 96,000
185,600
Acquisition differential 204,400
Allocated: FV – CA
Accounts receivable - $2,400
Inventory 17,800
Plant 28,800
Trademarks 30,000
Patents 37,600
Domain names 50,000
Long-term debt - 6,000 155,800
Goodwill $48,600
Non-controlling interest 10% x 390,000 $39,000

Prima Ltd
Consolidated Balance Sheet
January 1, Year 6

Cash (370,000 –351,000 + 6,400) $25,400


Accounts receivable (80,000 + 22,400 –2,400) 100,000
Inventory (96,000 + 67,200 + 17,800) 181,000
Plant (510,000 + 163,200 + 28,800) 702,000
Trademarks 30,000
Patents (100,000 + 22,400 + 37,600) 160,000
Domain names (0 + 0 + 50,000) 50,000
Goodwill 48,600
$1,297,000

Current liabilities (160,000 + 32,000)


$192,000
Long-term debt (256,000 + 64,000 + 6,000) 326,000
Common shares 352,000
Retained earnings 388,000
Non-controlling interest 39,000
$1,297,000

(b)
If an independent business valuator valued the NCI at $35,000, NCI would be reported
at $35,000 rather than $39,000 and goodwill would be reported at $44,600 rather
than $48,600.
(c)
PRIMA LTD.
Balance Sheet
January 1, Year 6
Cash (370,000 –351,000) $ 19,000
Accounts receivable 80,000
Inventory 96,000
Investment in Donna Corp. 351,000
Plant 510,000
Patents 100,000
$1,156,000

Current liabilities $ 160,000


Long-term debt 256,000
Common shares 352,000
Retained earnings 388,000
$1,156,000

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