Final answer:
The question relates to the financial consolidation process when a parent company acquires a subsidiary. The response provides detailed steps to calculate excess allocation and worksheet amortization, prepare consolidation worksheet journal entries, and create a consolidation worksheet as of December 31, 2013.
Step-by-step explanation:
Excess Allocation and Worksheet Amortization Calculations
To begin with, we need to allocate the excess purchase price over the fair value of the net assets acquired. Matthews Co. paid $588,000 for Jackson Co., whose assets and liabilities have different fair values from the book values. We will calculate the excess amount that is due to an unrecorded patent, which will be amortized over ten years.
Here is the excess allocation calculation based on given fair values:
Land: Fair value adjustment (+$12,000 from $90,000 to $102,000)
Buildings: Fair value adjustment (+$48,000 from $140,000 to $188,000)
Equipment: Fair value adjustment (-$24,000 from $240,000 to $216,000)
Unrecorded patent: This is calculated as the residual amount.
The total fair value of net assets is calculated by adding the fair value adjustments to the book value of equity ($300,000 common stock + $120,000 retained earnings).
Subtracting the total fair value of net assets from the purchase price gives us the value assigned to the unrecorded patent. This patent value is then amortized over 10 years.
Consolidation Worksheet Journal Entries
Next, we prepare the journal entries for consolidation at the end of each year. This includes eliminating the investment account, recognizing the amortization of the excess purchase price allocation (including the patent), and adjusting the noncontrolling interest, if applicable.
For 2012, we also eliminate intercompany dividends and recognize Jackson's net income in Matthews's investment account using the equity method.
For 2013, adjustments are similar, keeping in mind any changes in the book value of Jackson's net assets and any additional amortization of intangible assets.
Consolidation Worksheet for December 31, 2013
Lastly, the consolidation worksheet for December 31, 2013, is prepared by combining the financials of Matthews and Jackson, while eliminating all intercompany balances and transactions, including the investment in Jackson and the corresponding equity accounts of Jackson recognized by Matthews, and recognizing the amortization entries related to the excess purchase price.