Question

On January 1, 2018, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000 control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000. A building was undervalued in the company's financial records by $28,000. This building had a ten-year remaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years. Carper earned income and paid cash dividends as follows: Net income Dividends paid

2013 105,000 54,600

2014 134,400 61,600

2015 154,000 84,000On December 31, 2015, Vacker owed $30,800 to Carper. There have been no changes in Carper's common stock account since the acquisition.


Required:


If the equity method had been applied by Vacker for this acquisition, what were the consolidation entries needed as of December 31, 2020?

Answer 1

Answer and Explanation:

Entry S

Dr Common Stock-Carper Inc.420,000

DrRetained Earnings, 1/1/15- Carper Inc. 375,200

Cr Investment in Carper Inc. (70%)556,640

Cr Non-controlling Interest in Carper Inc., 1/1/15238,560

Entry A

Dr Building (28,000 less 2 yrs. Depreciation.)22,400

Dr Copyright (80,000 less 2 yrs. Amort.)72,000

Dr Goodwill140,000

Cr Investment in Carper Inc.170,080

Cr Non-controlling Interest64,320

Entry I

Dr Equity in Subsidiary Earnings103,040

Cr Investment in Carper Inc.103,040

Entry D

Dr Investment in Carper Inc.58,800

Cr Dividends Paid58,800

Entry E

Dr Depreciation Expense2,800

Dr Amortization Expense4,000

Cr Buildings2,800

Cr Copyright4,000

Entry P

Dr Accounts Payable30,800

Cr Accounts receivable30,800

Non-controlling Interest items:

Dividends(25,200)

Income of Carper44,160

Beginning NCI = $270,000 + $29,460 (income) – $16,380 (divs) + $38,280 (income) – $18,480 (divs) = $302,880

Goodwill: Vacker paid $650,000 which includes $20,000 premium. Thus, $630,000 represents 70% of the shares without the premium. $630,000/.70 =900,000

The acquisition value which is $28,000 was allocated based on the fair value of the building. With a ten-year remaining life, amortization will be $2,800 per year of which $1,960 is attributed to the controlling interest.Copyright amortization would have been $4,000 per year of which $2,800 is attributed to the controlling interest.