Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2009. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams’s acquisition. On December 31, 2009, Barstow had the following account balances:
|
Book Value |
Fair Value |
|
|
Current assets |
$ 160,000 |
$ 160,000 |
|
Land |
120,000 |
150,000 |
|
Buildings (10 year life) |
220,000 |
200,000 |
|
Equipment (5 year life) |
160,000 |
200,000 |
|
Patents (10 year life) |
–0– |
50,000 |
|
Notes payable (5 year life) |
(200,000) |
(180,000) |
|
Common stock |
(180,000) |
|
|
Retained earnings, 12/31/09 |
(280,000) |
December 31, 2011, adjusted trial balances for the two companies follow:
|
Debits |
Adams Corporation |
Barstow, Inc |
|
Current assets |
$ 610,000 |
$ 250,000 |
|
Land |
380,000 |
150,000 |
|
Buildings |
490,000 |
250,000 |
|
Equipment |
873,000 |
150,000 |
|
Investment in Barstow, Inc |
702,000 |
–0– |
|
Cost of goods sold |
480,000 |
90,000 |
|
Depreciation expense |
100,000 |
55,000 |
|
Interest expense |
40,000 |
15,000 |
|
Dividends paid |
110,000 |
70,000 |
|
Total debits |
$3,785,000 |
$1,030,000 |
|
Credits |
||
|
Notes payable |
$ 860,000 |
$ 230,000 |
|
Common stock |
510,000 |
180,000 |
|
Retained earnings, 1/1/11 |
1,367,000 |
340,000 |
|
Revenues |
940,000 |
280,000 |
|
Investment income |
108,000 |
–0– |
|
Total credits |
$3,785,000 |
$1,030,000 |
a. Prepare schedules for acquisition date fair value allocations and amortizations for Adams’s investment in Barstow.
b. Determine Adams’s method of accounting for its investment in Barstow. Support your answer with a numerical explanation.
c. Without using a worksheet or consolidation entries, determine the balances to be reported as of December 31, 2011, for this business combination.
d. To verify the figures determined in requirement (c), prepare a consolidation worksheet for Adams Corporation and Barstow, Inc., as of December 31, 2011.