In order to record the shares acquired at fair value, the individual stockholder’s residual in-terest must have increased and the new resi-dual interest must be under 5%; or the stock-h
Trang 1SA-1
SPECIAL APPENDIX 1 UNDERSTANDING THE ISSUES
1 In order to record the shares acquired at fair
value, the individual stockholder’s residual
in-terest must have increased and the new
resi-dual interest must be under 5%; or the
stock-holder’s residual interest decreased and (a) the
voting interest must be under 20%, (b) the
indi-vidual supplied less than 20% of the company’s
total capital including debt, and (c) the new
re-sidual interest is less than 5%, and all the
for-mer owners whose ownership interest
de-creased must be under 20%
Those shares not recorded at fair value are
recorded at the simple-equity-adjusted cost of
the owner
2 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-quired for monetary consideration Thus, if 90%
of the shares were acquired from noncontrolling group stockholders, but the total monetary con-sideration given to all former owners was 70%, only 70% of the shares acquired from the for-mer noncontrolling group could be recorded at fair value The balance of the shares would be recorded at book value
3 Eighty-five percent of the shares would be
rec-orded at fair value on the date of the acquisi-tion Generally, the remaining shares would be recorded at their owner’s simple-equity-adjusted cost There are, however, exceptions for owners with a less than 5% interest that would allow the shares of the continuing stock-holders to be recorded at current fair value
Trang 2SA1—Exercises
SA-2
EXERCISES
EXERCISE SA1-1
(1) 9,000 noncontrolling group shares at $40 market value* $360,000 1,000 controlling group shares at $25 equity-adjusted cost 25,000 Total cost $385,000
*80% test met: 9,000 ÷ 10,000 = 90% acquired for cash
(2) 8,000 noncontrolling group shares at $40 market value* $320,000 2,000 controlling group shares at $25 equity-adjusted cost 50,000 Total cost $370,000
*80% test met: 8,000 ÷ 10,000 = 80% acquired for cash
(3) 7,000 noncontrolling group shares at $40 market value* $280,000 2,000 noncontrolling group shares at $33 book value
($330,000 ÷ 10,000 shares) 66,000 1,000 controlling group shares at $25 equity-adjusted cost 25,000 Total cost $371,000
*80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash
Trang 3SA1—Exercises
SA-3
EXERCISE SA1-2
Calculation of cost:
7,000 noncontrolling group shares at $40 market value* $280,000 2,000 noncontrolling group shares at $35 book value
($350,000 ÷ 10,000 shares) 70,000 1,000 controlling group shares at $38 equity-adjusted cost 38,000 Total cost $388,000
*80% test not met: 7,000 ÷ 10,000 = 70% acquired for cash
Determination and Distribution of Excess Schedule
80% Investment Price paid for investment ($280,000 + $38,000) $318,000
Less interest acquired:
Equity ($350,000 × 80%) 280,000
$ 38,000 Property, plant, and equipment ($30,000 × 80%) 24,000 Goodwill $ 14,000
Hercules Corporation Balance Sheet January 1, 20X1
Assets Liabilities and Stockholders’ Equity
Cash $ 50,000 Long-term debt $160,000 Inventory 100,000 Common stock (6,000
shares × $10) 60,000 Property and plant 224,000 Paid-in capital in excess of par
Goodwill 14,000 [(1,000 × $28) + (2,000 ×
$25) + (3,000 × $30)] 168,000 Total assets $388,000 Total liabilities and equity $388,000
Trang 4SA1—Problem
SA-4
PROBLEM
PROBLEM SA1-1
(1) Calculation of cost:
7,000 noncontrolling group shares at $50 fair value* $350,000 2,000 noncontrolling group shares at $30.50 book value
($305,000 ÷ 10,000) 61,000
1,000 controlling group shares at $45 equity-adjusted cost 45,000 Total cost $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
80% Investment
Price paid ($350,000 + $45,000) $395,000 Equity ($305,000 × 80%) 244,000 Excess of cost over book value (debit balance) $151,000 Inventory ($20,000 × 80%) (16,000) Equipment ($25,000 × 80%) (20,000) Building ($80,000 × 80%) (64,000) Goodwill $ 51,000
Entries:
Cash 100,000
Common Stock ($10 par) 40,000 Paid-In Capital in Excess of Par 60,000
To record formation of Newtone Corporation
Cash 250,000
Bonds Payable 250,000
To record borrowing for the buyout
Trang 5SA1—Problem
SA-5
Problem SA1-1, Continued
Cash 60,000
Inventory ($130,000 + $16,000 + $2,000) 146,000
Accounts Receivable 40,000
Equipment ($75,000 + $20,000) 95,000
Building ($120,000 + $64,000) 184,000
Land 30,000
Goodwill 51,000
Bonds Payable 150,000
Common Stock (6,000 shares × $10 par) 60,000 Paid-In Capital in Excess of Par
[($45,000 + $61,000) – $60,000 par] 46,000 Cash 350,000
To record the acquisition of Oldtime
(2) Calculation of cost:
9,000 noncontrolling group shares at $50 fair value
(includes 1,000 shares for 2,000 shares traded)* $450,000
1,000 controlling group shares at $45 equity-adjusted cost 45,000
Total cost $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
100% Investment
Price paid ($450,000 + $45,000) $495,000
Equity ($305,000) (305,000)
Excess of cost over book value (debit balance) $190,000
Inventory ($20,000) (20,000) Equipment ($25,000) (25,000) Building ($80,000) (80,000)
Goodwill $ 65,000
Trang 6
SA1—Problem
SA-6
Problem SA1-1, Concluded
Entries:
Cash 100,000
Common Stock ($10 par) 40,000 Paid-In Capital in Excess of Par 60,000
To record formation of Newtone Corporation
Cash 300,000
Bonds Payable 300,000
To record borrowing for the buyout
Cash 60,000
Inventory ($130,000 + $20,000) 150,000
Accounts Receivable 40,000
Equipment ($75,000 + $25,000) 100,000
Building ($120,000 + $80,000) 200,000
Land 30,000
Goodwill 65,000
Bonds Payable 150,000
Common Stock (5,000 shares × $10 par) 50,000 Paid-In Capital in Excess of Par
[($50,000 + $45,000) – $50,000 par] 45,000 Cash 400,000
To record the acquisition of Oldtime