accounting-Prepare your written response in the areas below

QUESTION

Part I

Part II

Prepare your written response in the areas below. Use a
separate section to address a separate part of the question.

Assume that Big Company decides to acquire 100% of Little
Company for $200,000. Prepare the consolidated balance sheet and any
supporting worksheets.
Calculation
of fair value of the net assets of Little Company
Journal Entry for Acquisition
Assume that Big Company decides to acquire 100%
of Little Company for $200,000. Prepare the consolidated balance sheet and
any supporting worksheets.
Prepare the Consolidated Balance Sheet in the
area below

1
The
consolidation process is when two or more separate companies create a single
set of financial statements. The
separate financial statements of each company is the starting point for
consolidated statements, the statements from each company are added
together. The consolidated worksheet
combines the accounts from both of the companies. Eliminating entries must be
entered into the consolidated worksheet to adjust the totals of the invidiual
accountbalances of the separate companies to reflect the amounts if the two
companies were actually a single company (Baker, Christensen, Cottrell, 2012
pg 68-70). Eliminating entries remove
intercompany transactions such as the investment in the subsidiary, without
the value of the company would be overstated.

Big Company
Balance Sheet

Big Company
Worksheet
Big Company Balance Sheet

Assets, Liabilities & Equities
Book Value

Assets, Liabilities & Equities

Assets, Liabilities & Equities

Cash
$500,000

Cash

Cash
$535,000

AR
$10,000

AR

AR
$20,000

Inventory
$50,000

Inventory

Inventory
$131,250

Land
$40,000

Land

Land
$90,000

PP&E
$400,000

PP&E

PP&E
$450,000

Accumulated Depreciation
-$150,000

Accumulated Depreciation

Accumulated Depreciation
-$155,000

Goodwill

Patent
$0

Patent

Patent
$0

Total Assets
$850,000

Total Assets

Total Assets
$1,071,250

AP
$110,000

AP

AP
$135,000

2
A
parent company may purchase a subsidary and they do not own 100 percent of a
subsidaries common stock. If the
parent company does purchase less than 100 percent common stock they must own
a controlling amount of stock in order to consolidate the subsidiary, an
example would be the parent must own 51 percent and the subsidary 49 percent
in order for the parent to consolidate the subsidiary. The shareholders of the subsidary instead
of the parent are considered the noncontrolling shareholders. The beginning noncontrolling interests
shareholders in a uncomplicated sitution is as simple as taking the
percentagae of book value and the percentagae of excess value, the net income
and subtract the dividends (Baker, Christensen, Cottrell, 2012 pg. 116).

Common Stock
$395,000

Common Stock

Common Stock
$420,000

Additional Paid In Capital
$300,000

Additional Paid In Capital

Additional Paid In Capital
$300,000

Retained Earnings
$45,000

Retained Earnings

Retained Earnings
$145,000

Total Liabilities
& Equity
$850,000

Total Liabilities
& Equity

Total Liabilities & Equity
$1,000,000

Little
Company Balance Sheet

Assets, Liabilities & Equities
Book Value

Cash
$35,000
$35,000

AR
$10,000
$10,000

Inventory
$65,000
$81,250

Land
$40,000
$50,000

PP&E
$40,000
$50,000

Accumulated Depreciation
-$5,000
$5,000

3

Patent
$0
$0

Total Assets
$185,000
$231,250

AP
$25,000
$25,000

Common Stock
$25,000
$25,000

Additional Paid In Capital
$35,000
$35,000

Retained Earnings
$100,000
$100,000

Total Liabilities
& Equity
$185,000
$185,000

Assume that Fair Value of all noncash assets are 25% greater
than book value

4

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