To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SPECIAL APPENDIX UNDERSTANDING THE ISSUES In order to record the shares acquired at fair value, the individual stockholder’s residual interest must have increased and the new residual interest must be under 5%; or the stockholder’s residual interest decreased and (a) the voting interest must be under 20%, (b) the individual supplied less than 20% of the company’s total capital including debt, and (c) the new residual interest is less than 5%, and all the former owners whose ownership interest decreased must be under 20% quired for monetary consideration Thus, if 90% of the shares were acquired from noncontrolling group stockholders, but the total monetary consideration given to all former owners was 70%, only 70% of the shares acquired from the former noncontrolling group could be recorded at fair value The balance of the shares would be recorded at book value Eighty-five percent of the shares would be recorded at fair value on the date of the acquisition Generally, the remaining shares would be recorded at their owner’s simple-equityadjusted cost There are, however, exceptions for owners with a less than 5% interest that would allow the shares of the continuing stockholders to be recorded at current fair value Those shares not recorded at fair value are recorded at the simple-equity-adjusted cost of the owner When at least 80% of the consideration given is not monetary, the shares recorded at fair value are limited to the percentage of shares ac- EXERCISES EXERCISE SA1-1 (1) 9,000 noncontrolling group shares at $40 market value* 1,000 controlling group shares at $25 equity-adjusted cost Total cost $360,000 25,000 $385,000 *80% test met: 9,000 ÷ 10,000 = 90% acquired for cash (2) 8,000 noncontrolling group shares at $40 market value* 2,000 controlling group shares at $25 equity-adjusted cost Total cost $320,000 50,000 $370,000 *80% test met: 8,000 ÷ 10,000 = 80% acquired for cash (3) 7,000 noncontrolling group shares at $40 market value* 2,000 noncontrolling group shares at $33 book value ($330,000 ÷ 10,000 shares) 1,000 controlling group shares at $25 equity-adjusted cost Total cost *80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash 527 $280,000 66,000 25,000 $371,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA1—Exercises EXERCISE SA1-2 Calculation of cost: 7,000 noncontrolling group shares at $40 market value* 2,000 noncontrolling group shares at $35 book value ($350,000 ÷ 10,000 shares) 1,000 controlling group shares at $38 equity-adjusted cost Total cost $280,000 70,000 38,000 $388,000 *80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash Determination and Distribution of Excess Schedule 70% Investment Price paid for investment Less interest acquired: Equity ($350,000 × 70%) $280,000 $ Property, plant, and equipment ($30,000 × 70%) Goodwill $ 245,000 35,000 21,000 14,000 Determination and Distribution of Excess Schedule 10% Investment Price paid for investment Less interest acquired: Equity ($350,000 × 10%) $38,000 $ Property, plant, and equipment ($30,000 × 10%) Goodwill $ 35,000 3,000 3,000 Hercules Corporation Balance Sheet January 1, 20X1 Liabilities and Stockholders’ Equity Assets Cash Inventory Property and plant Goodwill Total assets $ 50,000 Long-term debt 100,000 Common stock (6,000 shares × $10) 224,000 Paid-in capital in excess of par 14,000 [(1,000 × $28) + (2,000 × $25) + (3,000 × $30)] $388,000 Total liabilities and equity 528 $160,000 60,000 168,000 $388,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA1—Problem PROBLEM PROBLEM SA1-1 (1) Calculation of cost: 7,000 noncontrolling group shares at $50 fair value* 2,000 noncontrolling group shares at $30.50 book value ($305,000 ÷ 10,000) 1,000 controlling group shares at $45 equity-adjusted cost Total cost $350,000 61,000 45,000 $456,000 *80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash Only those shares acquired with monetary consideration may be recorded at fair value Determination and Distribution of Excess Schedule 70% Investment Price paid Equity ($305,000 × 70%) Excess of cost over book value (debit balance) Inventory ($20,000 × 70%) Equipment ($25,000 × 70%) Building ($80,000 × 70%) Goodwill $ $350,000 213,500 $136,500 (14,000) (17,500) (56,000) 49,000 Determination and Distribution of Excess Schedule 10% Investment Price paid Equity ($305,000 × 10%) Excess of cost over book (debit balance) Inventory ($20,000 × 10%) Equipment ($25,000 × 10%) Building ($80,000 × 10%) Goodwill $ $45,000 30,500 $14,500 (2,000) (2,500) (8,000) 2,000 Entries: Cash Common Stock ($10 par) Paid-In Capital in Excess of Par To record formation of Newtone Corporation 100,000 Cash Bonds Payable To record borrowing for the buyout 250,000 529 40,000 60,000 250,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA1—Problem Problem SA1-1, Continued Cash Inventory ($130,000 + $14,000 + $2,000) Accounts Receivable Equipment ($75,000 + $17,500 + $2,500) Building ($120,000 + $56,000 + $8,000) Land Goodwill Bonds Payable Common Stock (6,000 shares × $10 par) Paid-In Capital in Excess of Par [($45,000 + $61,000) – $60,000 par] Cash To record the acquisition of Oldtime 60,000 146,000 40,000 95,000 184,000 30,000 51,000 150,000 60,000 46,000 350,000 (2) Calculation of cost: 9,000 noncontrolling group shares at $50 fair value (includes 1,000 shares for 2,000 shares traded)* 1,000 controlling group shares at $45 equity-adjusted cost Total cost $450,000 45,000 $495,000 *80% test met: 8,000 ÷ 10,000 = 80% acquired for cash All noncontrolling shares may be recorded at fair value Determination and Distribution of Excess Schedule 90% Investment Price paid Equity ($305,000 × 90%) Excess of cost over book value (debit balance) Inventory ($20,000 × 90%) Equipment ($25,000 × 90%) Building ($80,000 × 90%) Goodwill $ $450,000 274,500 $175,500 (18,000) (22,500) (72,000) 63,000 Determination and Distribution of Excess Schedule 10% Investment Price paid Equity ($305,000 × 10%) Excess of cost over book value (debit balance) Inventory ($20,000 × 10%) Equipment ($25,000 × 10%) Building ($80,000 × 10%) Goodwill 530 $ $45,000 30,500 $14,500 (2,000) (2,500) (8,000) 2,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA1—Problem Problem SA1-1, Concluded Entries: Cash Common Stock ($10 par) Paid-In Capital in Excess of Par To record formation of Newtone Corporation 100,000 Cash Bonds Payable To record borrowing for the buyout 300,000 Cash Inventory ($130,000 + $18,000 + $2,000) Accounts Receivable Equipment ($75,000 + $22,500 + $2,500) Building ($120,000 + $72,000 + $8,000) Land Goodwill ($63,000 + $2,000) Bonds Payable Common Stock (5,000 shares × $10 par) Paid-In Capital in Excess of Par [($50,000 + $45,000) – $50,000 par] Cash To record the acquisition of Oldtime 60,000 150,000 40,000 100,000 200,000 30,000 65,000 531 40,000 60,000 300,000 150,000 50,000 45,000 400,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ...To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SA1—Exercises EXERCISE SA1-2 Calculation of cost: 7,000 noncontrolling group shares... in excess of par 14,000 [(1,000 × $28) + (2,000 × $25) + (3,000 × $30)] $388,000 Total liabilities and equity 528 $160,000 60,000 168,000 $388,000 To download more slides, ebook, solutions... recorded at fair value Determination and Distribution of Excess Schedule 70% Investment Price paid Equity ($305,000 × 70%) Excess of cost over book value (debit balance) Inventory