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
Trang 1SPECIAL 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
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
Trang 2EXERCISE 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
70% Investment Price paid for investment $280,000
Less interest acquired:
Equity ($350,000 × 70%) 245,000
$ 35,000 Property, plant, and equipment ($30,000 × 70%) 21,000 Goodwill $ 14,000
Determination and Distribution of Excess Schedule
10% Investment Price paid for investment $38,000 Less interest acquired:
Equity ($350,000 × 10%) 35,000
$ 3,000 Property, plant, and equipment ($30,000 × 10%) 3,000 Goodwill $ 0
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 3SA1—Problem
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
70% Investment Price paid $350,000 Equity ($305,000 × 70%) 213,500 Excess of cost over book value (debit balance) $136,500 Inventory ($20,000 × 70%) (14,000) Equipment ($25,000 × 70%) (17,500) Building ($80,000 × 70%) (56,000) Goodwill $ 49,000
Determination and Distribution of Excess Schedule
10% Investment Price paid $45,000 Equity ($305,000 × 10%) 30,500 Excess of cost over book (debit balance) $14,500 Inventory ($20,000 × 10%) (2,000) Equipment ($25,000 × 10%) (2,500) Building ($80,000 × 10%) (8,000) Goodwill $ 2,000 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 4Problem SA1-1, Continued
Cash 60,000
Inventory ($130,000 + $14,000 + $2,000) 146,000
Accounts Receivable 40,000
Equipment ($75,000 + $17,500 + $2,500) 95,000
Building ($120,000 + $56,000 + $8,000) 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
90% Investment Price paid $450,000 Equity ($305,000 × 90%) 274,500 Excess of cost over book value (debit balance) $175,500 Inventory ($20,000 × 90%) (18,000) Equipment ($25,000 × 90%) (22,500) Building ($80,000 × 90%) (72,000) Goodwill $ 63,000
Determination and Distribution of Excess Schedule
10% Investment Price paid $45,000 Equity ($305,000 × 10%) 30,500 Excess of cost over book value (debit balance) $14,500 Inventory ($20,000 × 10%) (2,000) Equipment ($25,000 × 10%) (2,500) Building ($80,000 × 10%) (8,000) Goodwill $ 2,000
Trang 5SA1—Problem
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 + $18,000 + $2,000) 150,000
Accounts Receivable 40,000
Equipment ($75,000 + $22,500 + $2,500) 100,000
Building ($120,000 + $72,000 + $8,000) 200,000
Land 30,000
Goodwill ($63,000 + $2,000) 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