ACC 4303 Exam 1
Page 1 of 7
Exam 1
1. The investor acquired 80% of investee on January 1, 2020 for $160,000. At acquisition the
fair value of the noncontrolling interest was $40,000. Trail Balance for the two entities at
December 31, 2020 are:
Investor
Debit
Cash
Investee
Credit
Debit
68,500
32,000
8,625
49,000
Inventory
97,000
24,000
Land
38,000
25,000
Buildings & Equipment
350,000
150,000
Investment in Subsidiary
197,600
Cost of Goods Sold
145,000
94,000
Wage Expense
35,000
20,000
Depreciation Expense
25,000
10,000
Interest Expense
12,000
4,000
Other Expense
23,000
11,000
Dividends Declared
30,000
12,000
Accounts Receivable
Accumulated Depreciation
Credit
170,000
50,000
Accounts Payable
51,000
15,000
Wages Payable
14,000
6,000
Notes Payable
150,000
50,000
Common Stock
200,000
50,000
Retained Earnings
126,875
60,000
Sales
290,000
200,000
Income from Subsidiary
Total
25,500
1,029,725
1,027,375
431,000
431,000
The book value of the investee’s assets are equal to the fair value except for patents which
are worth $20,000 more. Patents have 10 years of remaining life at acquisition.
At acquisition the accumulated depreciation was $40,000
Required:
1. Allocation of Acquisition Value
2. Equity entries for 2020.
3. Worksheet entries for the 2020 year end consolidation.
ACC 4303 Exam 1
Page 2 of 7
1/1/2020
12/31/2020
Net Income $61,000
Dividend $12,000
o
o
o
Acquisition – Investor acquires 80% for $160,000
At acquisition the Fair Value of NCI is $40,000
Net Identifiable Assets
Common
Stock
•$50,000
Retained
Earnings
•60,000
Total
o
o
o
•$110,000
Excess Value (Patents) $20,000
Patents 10 Year Life
At Acquisition Accumulated Depreciation 40,000
Income Statement
Sales
Cost of Goods Sold
Wages Expense
Depreciation Expense
Interest Expense
Other Expense
Net Income
200,000
94,000
20,000
10,000
4,000
11,000
Net Identifiable Assets
Less: Excess Value
Fair Value Identifiable Assets
139,000
61,000
110,000
20,000
130,000
To get 100% of Acquisition Value from stated 80%
160,000 ÷ 80% = 200,000
Acquisition Value
Less: Fair Value Identifiable Assets
Goodwill
200,000
130,000
70,000
Allocation of Acquisition Value – 20 Points
Total
Acquisition Value
200,000
Goodwill
70,000
Fair Value Identifiable Assets
130,000
Excess Value (Patents)
20,000
Net Identifiable Assets
110,000
Investments – 80%
160,000
56,000
104,000
16,000
88,000
NCI – 20%
40,000
14,000
26,000
4,000
22,000
ACC 4303 Exam 1
Page 3 of 7
Equity Entries – 20 Points
Equity Entry
Date
Accounts
12/31/2020 Investment
Cash
Debit
Credit
160,000
160,000
Acquisition
61,000 x 80% = 48,000
Equity Entry
Date
Accounts
12/31/2020 Investment
Income
Income 61,000 x 80%
Debit
Credit
48,800
48,800
12,000 x 80% = 9,600
Equity Entry
Date
Accounts
12/31/2020 Dividends Receivable
Investment
Dividends Declared 12,000 x 80%
Equity Entry
Date
Later Date
Accounts
Cash
Dividends Receivable
Dividends Payment
Debit
Credit
9,600
9,600
Debit
Credit
9,600
9,600
Amortization of Access Value
20,000 ÷ 10 (Years) = 2,000
2,000 x 80% = 1,600
Equity Entry
Date
Accounts
Debit
12/31/2020 Income
1,600
Investment
Amortization of Access Value 20,000 ÷ 10 x 80%
Credit
1,600
ACC 4303 Exam 1
Basic Consolidation Entry
Date
Investment – 80%
1/1/2020
88,000
Income
48,800
Dividends
(9,600)
12/31/2021
127,200
NCI – 20%
20,000
12,200
(2,400)
31,800
+
+
+
+
+
Page 4 of 7
=
=
=
=
=
Common Stock
50,000
0
0
50,000
+
+
+
+
+
Retained Earnings
60,000
61,000
(12,000)
109,000
Worksheet Entry – 14 Points
Date
Accounts
Debit
Common Stock
Retained Earning
Income
NCI – Net Income
Dividends
Investment
NCI – Net Asset
Patents
Goodwill
Total
Credit
50,000
60,000
48,800
12,200
12,000
127,200
31,800
20,000
70,000
90,000
90,000 x 80% = 72,000
90,000 – 72,000 = 18,000
20,000 ÷ 10 (Years) = 2,000
2,000 x 80% = 1,600
2,000 – 1,600 = 400
Excess Value Entry
Date
Investment – 80%
1/1/2020
72,000
Income
0
Patents Δ
(1,600)
12/31/2020
70,400
+
+
+
+
+
NCI – 20%
18,000
0
(400)
17,600
Excess Value (Worksheet) Entry – 8 Points
Date
Accounts
Patents
Goodwill
Investment
NCI – Net Assets
=
=
=
=
=
Patents
20,000
0
(2,000)
18,000
Debit
+
+
+
+
+
Credit
18,000
70,000
70,400
17,600
Goodwill
70,000
0
0
70,000
ACC 4303 Exam 1
Reclass (Worksheet) Entry – 6 Points
Date
Accounts
Amortization Expense
Income
NCI – Net Income
Page 5 of 7
Debit
Credit
2,000
1,600
400
Elimination Accumulated Depreciation @ Acquisition
Worksheet Entry – 4 Points
Date
Accounts
Accumulated Depreciation
Building & Equipment
20 + 20 + 14 + 8 + 6 + 4 = 72
72 x 0.7
Debit
Credit
40,000
40,000
ACC 4303 Exam 1
Page 6 of 7
II. Alpha Company used debentures with a par value of $660,000 to acquire 100% of Zeta,
Inc. on January 1, 2013. On that date the fair value of the debenture issued was $644,000.
The following balance sheet data was reported by Zeta at the point of the acquisition:
Historical
Cost
80,000
145,000
75,000
450,000
-170,000
580,000
Cash and Receivables
Inventory
Land
Plant and Equipment
Less: Accumulated Depreciation
Total Assets
Accounts Payable
Common Stock
Additional Paid in Capital
Retained Earnings
Total Liabilities & Equity
50,000
100,000
60,000
370,000
580,000
Prepare the entry to record the above transaction.
660,000 – 644,000 = 16,000
Par Value AKA Bonds Payable
Less: Fair Value
Discount Bonds
Net Income
Less: Accounts Payable
Net Identifiable Assets
Debentures
Par Values
Less: Discount on Debentures
Market Value
Less: Net Identifiable Asset
Bargain Purchase
660,000
644,000
16,000
700,000
50,000
650,000
660,000
16,000
644,000
650,000
(6,000)
Fair
Value
75,000
200,000
75,000
350,000
700,000
50,000
ACC 4303 Exam 1
Page 7 of 7
30 Points
Date
Accounts
Cash and Receivables
Inventory
Land
Plant and Equipment
Discount on Debentures
Accounts Payable
Debentures
Bargain Purchase
? ÷ 30 x 0.3
Debit
Credit
75,000
200,000
75,000
350,000
16,000
50,000
660,000
6,000