House Corporation has been operating profitably since its creation in 1959. At the beginning of 2009, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair value allocation schedule:
|
Consideration transferred for 70 percent interest in Wilson |
$707,000 |
|
|
Fair value of the 30% noncontrolling interest |
303,000 |
|
|
Wilson business fair value |
$1,010,000 |
|
|
Wilson book value |
790,000 |
|
|
Excess fair value over book value |
$220,000 |
|
|
Assignments to adjust Wilson’s assets to fair value: |
||
|
To buildings (20 year life) |
$60,000 |
|
|
To equipment (4 year life) |
20,000 |
|
|
To franchises (10 year life) |
40,000 |
80,000 |
|
To goodwill (indefinite life) |
$140,000 |
House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House’s purchases during 2009 and 2010 and related ending inventory balances follow:
|
Year |
Intra Entity Purchases |
Retained Intra Entity Inventory—End of Year (at transfer price) |
|
2009 |
$120,000 |
$40,000 |
|
2010 |
150,000 |
60,000 |
On January 1, 2011, House and Wilson acted together as co acquirers of 80 percent of Cuddy Company’s outstanding common stock. The total price of these shares was $240,000, indicating neither goodwill nor other specific fair value allocations. Each company put up one half of the consideration transferred. During 2011, House acquired additional inventory from Wilson at a price of $200,000. Of this merchandise, 45 percent is still held at year end.
Using the three companies’ following financial records for 2011, prepare a consolidation worksheet. The partial equity method based on operational earnings has been applied to each investment.
|
House Corporation |
Wilson Company |
Cuddy Company |
|
|
Sales and other revenues |
$ (900,000) |
($700,000) |
($300,000) |
|
Cost of goods sold |
551,000 |
300,000 |
140,000 |
|
Operating expenses |
219,000 |
270,000 |
90,000 |
|
Income of Wilson Company |
91,000 |
–0– |
–0– |
|
Income of Cuddy Company |
28,000 |
28,000 |
–0– |
|
Net income |
($249,000) |
($158,000) |
($70,000) |
|
Retained earnings, 1/1/11 |
($820,000) |
($590,000) |
($150,000) |
|
Net income (above) |
249,000 |
158,000 |
70,000 |
|
Dividends paid |
100,000 |
96,000 |
50,000 |
|
Retained earnings, 12/31/11 |
($969,000) |
($652,000) |
($170,000) |
|
Cash and receivables |
$220,000 |
$334,000 |
$67,000 |
|
Inventory |
390,200 |
320,000 |
103,000 |
|
Investment in Wilson Company |
807,800 |
–0– |
–0– |
|
Investment in Cuddy Company |
128,000 |
128,000 |
–0– |
|
Buildings |
385,000 |
320,000 |
144,000 |
|
Equipment |
310,000 |
130,000 |
88,000 |
|
Land |
180,000 |
300,000 |
16,000 |
|
Total assets |
$2,421,000 |
$1,532,000 |
$418,000 |
|
Liabilities |
($632,000) |
($570,000) |
($98,000) |
|
Common stock |
820,000 |
310,000 |
150,000 |
|
Retained earnings, 12/31/11 |
969,000 |
652,000 |
170,000 |
|
Total liabilities and equities |
($2,421,000) |
($1,532,000) |
($418,000) |